A stub quote is a quote that is intentionally made so far from the prevailing market to guarantee that it will not be executed. Stub quotes were used in the past by market makers when they did not want to trade at certain prices but needed to meet their two-sided trading obligation. Then on a single day in 2010, a deep drop in the market triggered the execution of a large number of trades against stub quotes.
The SEC responded with a new rule that requires market makers to post continuous two-sided quotes within a certain designated percentage of the NBBO (see table) for NMS securities during market hours. These requirements hold for both Nasdaq and ADF entries. If no NBBO exists for the security, then the price range (known as a price band) must be calculated based on the last transaction.
