Sub-Pennying

Defined:  When a broker-dealer or algorithmic program steps ahead of a displayed limit order by a fraction of a cent.

Example:
Ticker:  BAC

Bid        Size (100 lots)      Ask        Size (100 lots)
$16.39               3893                $16.40           4893

Time & Sales      
Time         Last      Share (100 lots)Exchange
14:38:0616.3901      3       NASD
14:38:06  16.39    3       NASD
14:38:07  16.40    1       BATS
14:38:07  16.40    2       BATS
14:38:0816.3999    20      NASD
14:38:10  16.40  5NASD
14:38:1016.3999     5NASD
14:38:1216.3999    38      NASD
14:38:12  16.40  38       NASD
14:38:13  16.39   4NASD
14:38:13  16.39   5NASD
14:38:13  16.39   5NASD
14:38:13  16.39   5NASD
14:38:13  16.39   5NASD
14:38:13  16.39   5NASD
14:38:1316.3901    30NASD
14:38:1316.3901    18NASD

* Notice the sub-penny trades in bold.  These trades take place inside the NBBO of $16.39 - $16.40.
An individual trader, or individual investor cannot place sub-penny orders on any stock priced above $1.00, as per SEC Rule 612.  But yet, all these trades happen all day.  How do they happen?

View the detailed Powerpoint show to find out:  PDF Version:




SEC rule 612 needs to be reviewed, and amended to better regulate the broker-dealer price improvement process, and to stop the practice of using dark pools to hide in front of the NBBO.

Mechanics Behind Sub-Pennying:   Strategies to avoid being Sub-pennied:


































We also encourage our readers to sign our Sub-Pennying petition form at:






* NOTE - Many trading platforms default their time and sales windows to 2 decimal places.  In order to see the sub-penny trades, you must change your time and sales window to 4 decimal places.
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SEC Concept Release on Equity Market Structure (S7-02-10)

The SEC is seeking comment from the investing public on the current market structure.  This is an excellent opportunity for our readers to submit their concerns with sub-pennying to the SEC.

View the SEC concept release.

We believe that broker-dealer internalization needs to be further regulated, so as to protect the NBBO from being internally abused by broker-dealers offering sub-penny price improvement.  On page 70 of the release, the Commission discusses the concept of a "Trade-at" rule, where there would be a minimum amount of acceptable price improvement (possibly one cent).  The proposed rule would also prohibit any trading center from executing a trade at the price of the NBBO unless that trading center was displaying the price at the time it received the incoming contra-side order.

Trading Defenders fully supports the concept of the "Trade-at" rule.  We encourage our readers to send their comments about sub-pennying and support for the proposed "Trade-at" rule to the SEC via this form:

Comments to SEC regarding equity market structure