Sub-Penny Rule
Quick definition
The Sub-Penny Rule (Rule 612) is a regulatory rule established by the U.S. Securities and Exchange Commission (SEC) in 2005 as part of Regulation NMS. It specifies the minimum price increment at which a National Market System (NMS) stock may be traded.
What is Sub-Penny Rule?
The Sub-Penny Rule prohibits market participants from displaying, ranking, or accepting quotes, orders, or indications of interest for any NMS stock priced in increments smaller than $0.01 if the stock is priced above $1.00 per share. For stocks priced below $1.00, the minimum price increment is set at $0.0001.
This rule was implemented to maintain price integrity and reduce the complexities associated with sub-penny pricing in the U.S. markets. It aims to promote fairness and transparency, ensuring that orders are executed at consistent and meaningful price levels.
It's important to note that the Sub-Penny Rule does not apply to non-NMS stocks, such as over-the-counter (OTC) stocks, which may trade in smaller increments without the same regulatory restrictions.
References
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Division of Market Regulation: Responses to Frequently Asked Questions Concerning Rule 612 (Minimum Pricing Increment) of Regulation NMS. U.S. Securities and Exchange Commission.
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