The Blubber

We often get asked why we don't provide a way to filter for trades taking place 'Below Bid' or 'Above Ask'.

Why we haven't:

It's impossible to trade outside of the 'NBBO (National Best Bid and Offer) bid-ask spread.'

Let's quickly go-over how the NBBO bid-ask works:

I've made-up 5 exchanges and provided their best bid and ask price for a made-up security. The NBBO spread in this situation would be 10.02 x 10.04: the highest price someone is willing to pay for this security is 10.02, and the lowest price someone is willing to sell this security for is 10.04.

Now if you were to place a trade your exchange could perform 1 of 2 actions:
They can route your order to the exchange with the best quoted NBBO (10.02 x 10.04) or they can match/provide a better price than the NBBO and execute it. If they were to improve on this price this trade would appear to have taken place outside of the bid-ask but not due to any perceived urgency by the trader.

This is the reason why 'price improvement' by brokerages is essentially a gimmick:

If you place a trade and receive a favorable fill your brokerage will display that to you as a 'price improvement' when in reality you were going to receive the best price anyway: you just happened to get a price better than what was being quoted by your exchange.

Large block trades (amongst other trades of smaller sizes) are often identified as having traded 'below the bid' or 'above the ask' by other options flow services. Block trades are often transacted at a price pre-negotiated by the participants: this price is generally at or near the current market price, but can easily fall outside of the bid-ask spread.

TLDR: while the tape may physically read that a trade has occurred outside of the posted bid and ask we are stressing that there is no additional urgency attached.

I hope this brief article helps shed some light on this widely misunderstood concept.