Impact of a tick size reduction on liquidity

Evidence from the Sydney Futures Exchange

Kiril Alampieski*, Andrew Lepone

*Corresponding author for this work

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

This paper examines the impact of a reduction in the minimum price increment on liquidity and execution costs in a futures market setting. In 2006, the Sydney Futures Exchange halved the minimum tick in the 3 Year Commonwealth Treasury Bond Futures. Results indicate that bid-ask spreads are significantly reduced after the change. Quoted depth, both at the best quotes and visible in the limit order book, is significantly lower after the tick reduction. Further analysis reveals that execution costs are significantly reduced after the change. We conclude that a tick size reduction improves liquidity and reduces execution costs in a futures market setting.

Original languageEnglish
Pages (from-to)1-20
Number of pages20
JournalAccounting and Finance
Volume49
Issue number1
DOIs
Publication statusPublished - Mar 2009
Externally publishedYes

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