Verousis, Thanos and Perotti, Pietro and Sermpinis, Georgios (2018) 'One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations.' Review of Quantitative Finance and Accounting, 50 (2). 353 - 392. ISSN 0924-865X

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Abstract

This paper offers a systematic review of the empirical literature on the implications of tick size changes for exchanges. Our focus is twofold: first, we are concerned with the market quality implications of a change in the minimum tick size. Second, we are interested in the implications of changes in the minimum tick size on market structure. We show that there is a large body of empirical literature that documents a decrease in transaction costs following a decrease in the minimum tick size. However, even though market liquidity increases, the incentive to provide market making activities decreases. We document a strong link between the minimum tick size regulations and the recent increase in high frequency trading activity. A smaller tick enhances the price discovery process. However, the question of how multiple tick size regimes affect market liquidity in a fragmented market remains to be answered. Finally, we identify topics for future research; we discuss the empirical literature on the minimum trade unit and the recent calls for a minimum resting time for quotes.

Item Type:	Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Essex Business School Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User:	Elements
Date Deposited:	15 Mar 2019 12:55
Last Modified:	15 Mar 2019 12:55
URI:	http://repository.essex.ac.uk/id/eprint/24171

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