Sub-penny quoting

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Sub-penny quoting is the practice of offering a decimal of a cent higher than a stock’s asking price or another buy order. It is also called sub-penny pricing or sub-penny trading. Subpenny trading followed, in part, from the switch from fraction-based stock prices to decimalization in 2001. When stocks began to be quoted in decimal increments, the smallest increment in which stock prices move was narrowed to a penny at Nasdaq and at the New York Stock Exchange. However, some systems continued to let their customers trade in increments smaller than a penny, in order to gain an edge.

The practice led to dispute because Nasdaq's system did not use sub-pennies and therefore was at a competitive disadvantage. Eventually, Nasdaq asked the SEC to let it trade in sub-pennies.[1]

References

  1. Nasdaq Pushes On Split-Penny Issue. The Wall Street Journal/Stanford Law School.