I’m pretty sure I know why it can happen - stocks are traded in lots of 100, and the price for the trade wasn’t an even dollar amount. But if that can happen, why doesn’t it happen in 99% of situations, and instead in only like (at a rough guess) 10%-20% of situations? Is there just only a portion of the market that bothers to trade lots of 100 down to the cent?
And why are ETFs different in this respect from common stock? I don’t think I’ve seen those quoted at hundredth of a cent.
For instance, IMCV closed at $62.6216 today, and SGDM closed at $23.79 for a change of -$0.0089, so it closed at a fractional cent price yesterday but not today. The rest of the ETFs (around a dozen) I hold are quoted only to the cent for both close and change.
I don’t trade on the NYSE but on the ASX most of the last burst of trades processed each day are “off market”. An institution/ trader will sell/reduce their holding for a nominated sum and the unit price is calculated to whatever decimals the system can display.
Currently you can buy the bank Westpac (market cap $75B and an ASX Top10) for $21.385. You can buy Ramelius Resources for $1.5375 at market. But nobody bids to 100th of a cent. An institution will have paid $1,537,500 for a million shares, or the equivalent for some other sized parcel.
A character of the ASX is that “we” don’t like high unit priced stocks. The highest unit priced stock here is currently Cochlear @ $260.06. Most stocks trade between $1-$25 and typically stock will consider splitting much above $50. With splits and issues and DRP (dividend reinvestment) most holding are not in neat parcels of multiples of 100.
Back in the pre-electronic trading days stcks were traded in discrete lots and if you had 104 shares (due to an issue or DRP) you couldn’t (readily) sell the last 4. Now the parcels are sold as per the holders discretion and consequently the average price is typically in fractional cents.
I poked around the internet and found some relevant info. The SEC currently sets the minimum tick size at a penny, which would explain while most prices are quoted to the penny. (A year ago they proposed a reduction in the minimum tick size to a fraction of a penny, but I don’t think that rule has passed yet). Off-exchange trading venues, sometimes caused dark markets, can apparently use any price they want though, which explains why some stocks trade with smaller tick sizes.
Not sure how this fits in, but some ETFs have low volumes: are thinly traded securities more likely to trade off exchange? I also wonder whether large block trades between the ETF and authorized participants show up in the ticker. If they do, it wouldn’t surprise me that they would trade with precise pricing.
There are also market makers. Some banks are both authorized participants and market makers in an ETF, some banks are only authorized participants, some traders are only market makers. Cite: Authorised participants and market makers of the ETF industry
My speculation is that market makers might trade with each other (and with authorized participants) in the OTC market and that pricing relative to NAV is agreed to by formula. ETFs have NAV estimates published every 15 minutes ([it’s called the IIV or IIOV intraday value). I find it difficult to believe that they would trade in penny increments if they could help it.
What I can’t figure out are the relative reporting requirements of exchange trades, OTC, grey pools, and dark pools, especially the latter two.