A jargon term (coined in the early 1990s) that surfaced in the market in the aftermath of changing the minimum size of orders or transactions on stock markets and exchanges from one-eight (1/8 th) of a cent. Sub-penny jumping (or simply, penny jumping) involves snatching an order from other sellers by offering a very tiny reduction in the trading price (hence, it is a type of front running). It is about taking advantage of the knowledge that another broker’s order will move the market, by placing a similar order at a trivially better price (in either direction, for a buy order, a lower price with a penny mark-down, and for a sell order, a bit higher price, with a penny mark-up).

For example, a specialist may “step in” to offer a price of $9.99 for a buy order by a market participant (for shares of stock) at $10. The specialist could jump in and sell the shares, out of its own inventory, to the buyer at $9.99. By so doing, the specialist snatches the order away from peer specialists, and for a very tiny “mark-down”.

Sub-penny jumping (also termed “sub-penny trading“) is a manipulation of the penny spread applicable at an exchange. Therefore, many exchanges banned sub-penny quoting. and to an extent the so-called non-block sub-penny executions.