Share price decimal places

[cinelli]

I have just bought some Astra Zeneca shares. The price I paid was 12160.8964 pence per share. This seems several decimal places more than necessary. Does anyone know why the price is to such a high accuracy? I have noticed the same with other shares so it isn't peculiar to AZN.

Cinelli

[Newroad]

Hi Cinelli.

First and foremost, I don't actually know.

However, I could speculate that it may be a side-effect, of sorts, of two different things

1. SEC Rule 612* (which allows for four decimal places for sub $1 stocks), and
2. That most people pay some sort of fee per trade (including in the UK, stamp duty) meaning prices are unlikely to round to a pence/cent

Putting the two together, (1) gives the capability/need and (2) gives the means to use it

Regards, Newroad

* yes, this is about quotes, but it's not much of stretch to go from what you've been quoted to accounting for what you've bought

[yorkshirelad1]

I have just bought some Astra Zeneca shares. The price I paid was 12160.8964 pence per share. This seems several decimal places more than necessary. Does anyone know why the price is to such a high accuracy? I have noticed the same with other shares so it isn't peculiar to AZN.

Cinelli

Depending on the size of your order, my guess would be that you've placed your order with one of the usual brokers, and the broker has gone into the market (or more accurately, its computers have), and your purchase was made up of several smaller transactions over a short period of time, and the price you see on the contract note was an average over the whole parcel of shares that you bought.
(IANAL or IFA etc)

[Lootman]

Back when I worked at an investment bank I recall we allowed for something like 12 decimal points for security prices.

It does not affect you or I, but if an institution is buying a few million shares in something then the rounding error can otherwise be non-trivial.

Same goes for FX rates.

[cinelli]

Spurred on by the helpful replies to my query, I have done a little digging on the advfn site to look at trades of AZN on the relevant day. I have taken two random blocks of trades, 26 in each of mid-morning and mid-afternoon. Of those 52 trades, 48 are carried out at a whole number of pennies and these are all marked as 'AT’. The remaining 4 trades are all carried out at fractional pennies, e.g. 12165.289p, and these are all marked ‘O’. The advfn site defines AT and O as follows:

'AT' An automatic trade
An automatic trade generated by the SETS system through the order book. (Level 2)

'O' Ordinary Trade (System will delay if over 6 x NMS)
A standard trade made through the Market Makers and dealt at normal settlement date.

I don’t understand what an automatic trade is but some are for very small numbers of shares, e.g. 2, 3 or 4.

Cinelli

[dealtn]

I have just bought some Astra Zeneca shares. The price I paid was 12160.8964 pence per share. This seems several decimal places more than necessary. Does anyone know why the price is to such a high accuracy? I have noticed the same with other shares so it isn't peculiar to AZN.

Cinelli

Your broker has to be able to demonstrate it has acted in the best of interests of its client (you). For retail clients the "best" way to achieve this, for deal sizes of less than NMS, is for it to electronically send a request for quote to the number of market makers that its platform can talk to, rather than to access the market directly.

The market makers are under a certain amount of pressure to win a certain market share of such transactions, and to do so instead of reflecting the actual market price, or one they would make to a direct enquiry from a non retail customer, they allow their electronic platform to respond to such RFQs. Within which they have an algorithm that estimates and adjusts the best prices visible to it. These aren't nice round numbers - computers don't care and just foilow the rules fed to them.

The winning offer to you can be an odd price as you describe.

I did this in the retail gilt market for years, and I doubt much is different or has changed in equities in that time. You would be surprised the number of times you trade "on the stock exchange" but in practice don't.