The Securities Industry and Financial Markets Association released an exposure draft of a policy statement and guidelines regarding error trade policies for interdealer brokers on Wednesday intended to provide guidance for the various issues that can arise with respect to error trades.

The policy statement was developed by SIFMA’s Interdealer Brokers Advisory Committee and it principally identifies areas that interdealer broker members should consider addressing in any formal error trade policy and procedures they may develop.

“The creation of a well-defined, clearly stated and easily understood error trade policy is important,” said Lynnette Hotchkiss, senior vice president and associate general counsel with SIFMA. “It helps to promote the integrity and efficiency of the trading venue specifically and the markets in general.”

SIFMA says that the establishment of clear policies and procedures to deal with error trades will help the markets to function more efficiently and also further promote market integrity. “To be effective, these policies and procedures need to strike the proper balance between resolving trades that were clearly transacted in error and the expectation of market participants that once executed, trades will stand and not be subject to arbitrary cancellation,” it says.

The policy statement acknowledges the need for flexibility in the design of error trade policies, but it also outlines specific issues that interdealer broker members may wish to address in their error trade policies and procedures.

Comments are due on Jan. 31, 2007.