|Stub Quote Rule Violations - Letter to Mary
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Dear Mrs. Schapiro,
We would like to thank the SEC for implementing the Stub Quote Rule in December
of 2010. While stub quoting did not cause the Flash Crash of May 6th 2010, it
was a contributing factor and we welcome the stub quote ban.
However, after studying four recent trading days, we have a question. Is
there any intention of enforcing the stub quote rule? If so, can you please
tell us when?
We processed all quotes for each of the last 4 days (we have some experience
with this), and printed out the time, symbol, and offending quote that was
outside a generous 32% band. Here are the results (note how often a bid is at a
Because a picture can be worth a thousand words (or a text file with over a
million stub quotes), we present you with four random images of stub quoting in
- For securities in the S&P 500 or Russell 1000 indexes, market makers
must enter quotes that are not more than 9.5% away from the NBBO. During the
first 15 and last 25 minutes of trading, entered quotes must be no further than
21.5% away from the NBBO. For all other exchange-listed equities, it's
* note: The quote is allowed to "drift" an additional 1.5%.away from
the BBO bands -- so 8% becomes 9.5%, 20% becomes 21.5% and 30% becomes 31.5%.
We have presented a mere handful of examples. Should you desire more data, we
have a mountain of it.
- 05/11/2011 - RJL Lodging Trust
On 05/11/2011 the stock RLJ began it's first day of trading (an IPO). The first
trade was at $17.25 followed by a series of trades at $0.0001 before resuming
- 05/13/2011 - Enstar Group
On 05/13/2011 the stock ESGR opened at $102.00 and quickly fell to $0.01.
- 08/05/2011 - SPDR Barclays Capital
Chart showing typical stub quoting well below the stub quote banding rules.
Note the price activity that follows.
- 08/08/2011 - Direxion
Another typical example of stub quoting we see on a daily basis.
Finally, given the simplicity of the stub quote rule, we would like to ask what
mechanisms the SEC will have in place to enforce the ever more complex
Limit Up/Limit Down
Thank you for your time.
Publication Date: 08/11/2011
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