The Financial Industry Regulatory Authority has filed proposed rule changes with the Securities and Exchange Commission that would modify the minimum price improvement that a member must provide in order to trade ahead of an unexecuted customer limit order. First, with respect to securities trading below $.01, the proposal would establish three sub-penny tiers (specifically, for orders priced (i) less than $.01 to $.0001, (ii) less than $.0001 to $.00001, and (iii) less than $.00001) and would generally require a minimum price improvement equal to the lesser of the lowest value in the applicable tier (for example, $.0001 for orders priced less than $.01 but equal to or greater than $.0001, except that the applicable value for orders priced less than $.00001 would be $.000001) or one-half of the current inside spread.
In addition, the proposal would add an alternative measure based on inside spread for limit orders priced over $1.00 (that is, the minimum amount of price improvement required would be the lesser of $.01 or one-half of the current inside spread). Finally, where the customer limit order is priced outside the inside market, the minimum price improvement must either satisfy the price improvement standards otherwise applicable to orders at that price or the member must trade at a price at or inside the best inside market.
The comment period for the proposal closes on September 18. http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-16955.pdf