The Securities and Exchange Commission on Monday banned a market- maker pricing practice known as stub quotes, prohibiting a technique that caused shares to trade as low as 1 cent during the May 6 crash.
Stub quotes are placeholders provided by market makers to satisfy a regulation to submit both bids and offers. Transactions aren’t meant to occur at those levels, which are at prices such as a penny or thousands of dollars. On May 6, when a 20-minute rout briefly erased $862 billion in value before stocks rebounded, companies such as Accenture PLC tumbled as traders pulled out of the market, leaving only stub quotes.
The SEC mandated that market makers’ quotes be within 8 percent of the national best bid or offer, according to a statement e-mailed Monday. The rule begins Dec. 6. Bloomberg News
