6.6 Error Resolution

Series 6 Investment Company Products

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1 Introduction

About the Series 6 Exam How to Use This Course

2 Chapter 1: Regulatory Fundamentals

1.1 Securities Regulations Overview 1.2 FINRA Rules and Structure 1.3 Communications with the Public 1.4 Prospectus Requirements 1.5 Ethical Standards and Prohibited Practices

3 Chapter 2: Investment Company Products

2.1 Mutual Funds Overview 2.2 Types of Mutual Funds 2.3 Share Classes and Sales Charges 2.4 Reducing Sales Charges 2.5 Mutual Fund Taxation 2.6 Mutual Fund Operations 2.7 Unit Investment Trusts (UITs) 2.8 Exchange-Traded Funds (ETFs) 2.9 Closed-End Funds

4 Chapter 3: Variable Contracts

3.1 Variable Annuities Overview 3.2 Accumulation and Annuity Phases 3.3 Annuity Payout Options 3.4 Annuity Features and Riders 3.5 Variable Annuity Taxation 3.6 Variable Life Insurance 3.7 Variable Life Insurance Taxation 3.8 Variable Contract Suitability

5 Chapter 4: Customer Accounts

4.1 Types of Customer Accounts 4.2 Retirement Accounts 4.3 529 College Savings Plans 4.4 Customer Identification Program (CIP) 4.5 Know Your Customer (KYC) 4.6 Account Documentation and Disclosures 4.7 Special Account Situations

6 Chapter 5: Suitability & Recommendations

5.1 Suitability Obligations 5.2 Investment Objectives 5.3 Risk Tolerance and Time Horizon 5.4 Making Suitable Recommendations 5.5 Retirement Planning Recommendations 5.6 Education Planning Recommendations 5.7 Recognizing Unsuitable Recommendations

7 Chapter 6: Processing Transactions

6.1 Mutual Fund Transactions 6.2 Variable Annuity Transactions 6.3 Trade Confirmations 6.4 Account Statements 6.5 Recordkeeping Requirements 6.6 Error Resolution

6.6 Error Resolution

Key Takeaways Explain This Topic AI

Errors can involve wrong security, quantity, price, account, or side.

Errors must be reported to supervisors immediately and documented.

Customers should be made whole when the firm is at fault.

Firms use error accounts to correct trades and track costs.

Customers must be notified of account-impacting corrections.

Error logs support supervision and prevention efforts.

Last updated: January 2026

Trade errors occur in the securities industry, and firms must have procedures to identify, correct, and document errors. Understanding error resolution protects both customers and firms.

• Types of Trade Errors
• Common Error Types

• Error Description
• Wrong security Purchased/sold different security than ordered
• Wrong quantity Incorrect number of shares
• Wrong price Executed at incorrect price
• Wrong account Transaction in wrong customer account
• Wrong side Buy instead of sell (or vice versa)
• Duplicate order Same order executed twice
• Failed to execute Order not processed
• Timing error Executed at wrong time
• Error Identification
• How Errors Are Discovered

• Source Description
• Customer complaint Customer identifies discrepancy
• Trade review Supervisory review catches error
• Reconciliation Back-office reconciliation
• Confirmation review Customer reviews confirmation
• Statement review Customer reviews periodic statement
• Error Correction Procedures
• Step-by-Step Process

• Step Action
• 1 Identify - Discover and document the error
• 2 Report - Notify supervisor immediately
• 3 Assess - Determine impact and cause
• 4 Correct - Execute correcting transactions
• 5 Notify - Inform customer if affected
• 6 Document - Complete error documentation
• 7 Review - Analyze for prevention
• Error Account Transactions

Firms maintain error accounts to correct mistakes:

• Example: Wrong Security Purchased
• Move erroneous shares to error account
• Sell correct shares to customer at price when order was placed
• Purchase correct shares from market
• Sell erroneous shares from error account

Key Point: The customer should receive the price they would have gotten if the order was executed correctly.

Who Bears the Cost?

General Rule

• Situation Who Pays
• Firm error Firm bears the loss
• Customer error Customer bears the loss
• Unclear fault Typically resolved in customer's favor
• Firm Error Examples
• Representative entered wrong security symbol
• Order not transmitted in time
• Order executed at wrong price
• Order placed in wrong account
• Customer Error Examples
• Customer provided wrong instructions
• Customer authorized wrong trade
• Customer failed to provide necessary information
• Customer Notification
• When to Notify

Customers must be notified when:

• Error affected their account
• Correction changes their position
• Correction changes their cost basis
• Any time their account is adjusted
• What to Include

• Information Description
• Nature of error What went wrong
• Impact How it affected the account
• Correction What was done to fix it
• Result Current correct position
• Documentation Requirements
• Error Documentation Should Include

• Element Description
• Date discovered When the error was found
• Description What the error was
• Cause Why it occurred
• Responsible party Who made the error
• Correction steps How it was fixed
• Customer notification When/how customer was informed
• Financial impact Cost to firm or customer
• Prevention measures Steps to prevent recurrence
• Error Log

Firms typically maintain an error log containing:

• All errors identified
• How each was resolved
• Patterns or trends
• Root cause analysis
• Preventing Errors
• Best Practices

• Practice Description
• Order verification Read back orders to customers
• Double-check symbols Verify security identifiers
• Confirmation review Supervisory review of tickets
• System controls Technology safeguards
• Training Regular training on procedures
• Supervisory Review

Supervisors should:

• Review error reports regularly
• Identify patterns or trends
• Address repeat offenders
• Update procedures as needed
• Regulatory Considerations
• FINRA Rule 3110 (Supervision)

Firms must have procedures to:

• Detect errors
• Correct errors promptly
• Document error resolution
• Prevent future errors
• Record Retention

Error documentation must be retained:

• Part of firm's books and records
• Subject to 17a-4 retention requirements
• Available for regulatory examination
• Customer Disputes
• If Customer Disagrees with Resolution

• Step Action
• 1 Escalate to branch manager
• 2 Escalate to compliance
• 3 Formal complaint process
• 4 Arbitration (if necessary)
• Customer Rights

Customers can:

• Dispute the resolution in writing
• Request supervisory review
• File complaint with firm
• File complaint with FINRA
• Seek arbitration
• Key Exam Points
• Report immediately - Notify supervisor when error discovered
• Customer made whole - Should receive correct price/position
• Firm error = Firm pays - Generally firm bears cost of its errors
• Document everything - Complete error documentation required
• Notify customer - Must inform customer of any account impact
• Error account - Used to process correcting transactions
• Prevention focus - Analyze errors to prevent recurrence
• Retain records - Error logs subject to recordkeeping rules

Loading diagram... Error Resolution Steps