Hi there,
I’m reading trades through api and I see a lot of trades with 4 decimals, why is this possible is we can make orders with 2?
Thanks a lot for helping my understanding
@Stormer It’s all about SEC Rule 612.
The rule prohibits market participants from displaying, ranking, or accepting quotations, orders, or indications of interest in any NMS stock priced in an increment smaller than $0.01 if the quotation, order, or indication of interest is priced equal to or greater than $1.00 per share. If the quotation, order, or indication of interest is priced less than $1.00 per share, the minimum pricing increment is $0.0001.
Notice this refers to orders and quotes. It does not place restrictions on the execution price. For example, some brokers have a ‘mid-point’ order type. They will fill your order at the midpoint of the bid and ask. If the bid is $10.01 and the ask is $10.02 then they can fill the order at $10.015.
Thanks a lot for your fast and proper answer, I heard about some rule but was not sure.
But I think I miss something else, if you take your sample you will never have an execution on 4 digits and I can see on the stream executions of $XX.0099 or $XX.0001 or $XX.0041, not in the mid-point, seems to me that some brokers has “special” orders, I can’t find other explanation.
Regards
@Stormer The mid-point order was just an example. Brokers can execute orders at any price as long as they follow their responsibility of ‘best execution’ for the client and also abide by SEC Rule 611 of Regulation NMS (the “Order Protection Rule”) . This requires executions be within the NBBO quote and preventing “trading through” the NBBO. There doesn’t need to be a ‘special order’. Brokers can have very complex order execution practices. Many times the ‘contra’ order for your limit order isn’t another retail order but rather the broker trading their own ‘prop’ account (the broker is the other side of the trade).