As a newb who is just starting to look at S&T / DOM, I'm a bit confused as to why I'm seeing these $27.8899 bid/offers going through? I know it's not effecting me w/ my swing-style, but I'd like to know the reason behind why & how it's being done. I was under the assumption all transactions were to the penny, not the 100th of a penny... If this is the case and becomes the norm, how does a retail trader get into the action? I understand that this has the potential to stop me out of trades/not trigger trades at the price I'm wanting...
I think the issue is that even if you have direct exchange access, that does no good unless orders actually get to the exchange. If orders are filled off exchange, your order will not get filled. As I understand it, the requirement is that if the fill is off exchange, ie internalized, the price has to be improved, but maybe only by a penny for the whole order. It is not quoted and quotes have to be for a full penny. Good for the brokers's customer because they got filled at a better price with little or no market impact. Good for the broker because they can earn a spread, even if the spread is very narrow. Bad for the guy with the limit order that watches trade after trade get reported for .0001 better than his limit order, but never actually gets a fill.
here's an answer for sub-pennying: http://www.defendtrading.com/SubpennyinginDarkPoolsCompromisingNBBO.pdf yes, it sucks that sub-pennying is allowed for some, and not allowed for most.
My guess is that B/D internalization (the broker taking the other side) is significantly negative, on average, for the customer getting "price improvement"; the customer saves $.01 TOTAL, but the spread may be $1-5 worse total due to the increased adverse selection experience by the party offering the best bid/ask. In other words, B/D internalization makes spreads wider, costing everyone but the B/D, who gets relatively low-risk profit at the expense of everyone else.
On Island or IEX within IB TWS, choose PEG MID as order type. Put the limit price in as the current offer price, for a buy order. Your order will be posted at mid. If there is already someone on the other side at mid, you will get filled immediately. To my knowledge, your order can only be filled against another mid order, regardless of where the price moves. If this is inaccurate, please post.