Pegging is an order attribute whereby the price of an order is automatically set with reference to the the best market price (e.g., NBBO) from amongst a number of nation-wide market centers. In the case of a single market center, the best bid (BB) or best offer (BO) for any displayed order with primary pegging will be set with reference to the highest bid or lowest offer disseminated solely by that market center.

An order with a pegging attribute is a “pegged order.” In practice, the price to which an order is pegged is known as the inside quotation, the inside bid, or the inside offer, depending on context.

The main three types or varieties of pegging are primary pegging, market pegging, and midpoint pegging:

• Primary pegging: pegging an order with reference to the inside quotation on the same side of the market. For the price of an order to buy (buy order) would be equal to the bid price (both prices are on the same side of the market). For example, if the inside bid was $10, an order to buy with primary pegging would be priced at $10.
• Market pegging: pegging an order with reference to the inside quotation on the opposite side of the market. An order placed with market pegging can ensure a trader that the price at which an order will be filled reflects the price level on the opposite side. For example, if the inside offer was $10.50, an order to buy (buy order) with market pegging would be priced at $10.50.
• Midpoint pegging: pegging with reference to the midpoint between the inside bid and the inside offer. Therefore, if the inside bid was $10 and the inside offer was $10.50, an order with midpoint pegging would be priced at $10.25.