Series 24: Minimum Price Increments (The Sub-Penny Pricing Rule)

Minimum Price Increments (The Sub-Penny Pricing Rule)

The sub-penny rule was put into place to prevent traders from pricing orders a fraction of a penny better than limit orders to “step ahead” of the limit order. The SEC was worried that over time this “stepping ahead” would discourage the use of limit orders. NMS stocks that trade at over $1 can only be traded and quoted in $.01 increments or more. NMS stocks that trade below $1 can be traded at increments of $.0001 or more. In other words sub-penny pricing is allowed only for stocks that trade at less than $1. The SEC’s sub-penny pricing rule does not apply to non-NMS stocks (OTCBB or Pink Sheets). Instead, FINRA’s minimum pricing rule for OTC Equity Securities applies. FINRA’s minimum pricing increments are similar to those of the SEC ($.01 for securities traded at $1 or more, $0.0001 for securities priced at less than $1).

However, members may accept, but not display, orders priced at less than $0.0001 in minimum increments of $0.000001.

SEC Rule 612

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