There's nothing strange about it and you're referencing things that aren't exactly relevant to the issue. The SEC has rules about lit market quotes which exist to give integrity to the price-time priority. No exchange is allowed to publicly quote fractional pennies so as to give someone a way of "jumping" the queue so to speak, but there are plenty of ways to transact at fractional pennies so long as one isn't quoting it on the lit market.

For example one can submit a mid-point peg order which can be filled at a fractional penny:

https://www.nasdaqtrader.com/content/productsservices/tradin...

There are also auctions that take place on a daily basis, such as the opening auction and closing auction, where trades may execute at a fractional price.

Furthermore NASDAQ also operates as a reporting facility, and as such reports trades made through ADFs such as FINRA, dark pools, off-exchange block trades, and inside quotes which are quite often executed as fractional pennies.

https://www.nasdaqtrader.com/content/home/help/tsiqtxtkey.pd...

Anyways, all this to say that the situation is a lot more detailed that you make it seem from your two references. It's not just a simple matter of SEC says orders have to be to the penny, so NASDAQ must be doing something really bizarre here.

> No exchange is allowed to publicly quote fractional pennies so as to give someone a way of "jumping" the queue so to speak, [...]

The rationale and effects of the sub-penny rule are quite complicated. And there's lots of lobbying done in either direction.

The bigger the smallest price increment, the more important speed becomes.

The original justification for minimum increments has gone: it was a workaround the limitations of human traders and human market makers.

But, alas, even with computers there are still some downsides to just allowing essentially arbitrary precision prices.

(I do find it somewhat strange that the SEC makes rules about this, though. Why don't they leave that to the individual exchanges?)

It looks like the smallest increment before decimalization was 1/16 of a dollar, or $0.0625, which could be represented exactly in 4 decimal places. So, by storing the value of the stock to this precision, both old and new prices could be stored in this format.

In that case they can store quarters of a cent instead of hundredths of a cent, and still be able to store $0.0625, while increasing their range by a factor of 25.

I'm trying to remember how we used to store it -- decimalization was 20 years ago this year!

I think we had a discriminant for the denominator, so it wasn't a rational type, but we could also easily represent both fractional and decimal prices. We could handle fractions smaller than 1/16, though I don't know if any equities traded at such prices. What you suggest would also be reasonable, but would have had to be rewritten when decimalization happened.

Frequently if the bid is say 40.10 and the ask is 40.09, the mark is shown as 40.095. Not sure if that's why they have hundredths, or just to support those legacy cases of odd fractions.

Nitpick: I think you meant bid 40.09 x 40.10 ask. Otherwise you'd have a crossed market or a trade executed.

Orders are generally quoted in cents, but trades execute off-book at fractional cent prices on a regular basis (e.g. when a HFT firm is providing price improvement).

I had forgotten that prices were fractional. I remember prices like 7 3/4 when I was a kid.

CME still uses fractions