Impact of MiFID II tick-size regime on equity markets—Evidence from the LSE

Eros Favaretto; Andrew Lepone; Grace Lepone

doi:10.1111/eufm.12355

Impact of MiFID II tick-size regime on equity markets—Evidence from the LSE

Eros Favaretto, Andrew Lepone^*, Grace Lepone

^*Corresponding author for this work

Department of Applied Finance

Research output: Contribution to journal › Article › peer-review

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Abstract

This study investigates the impact of MiFID II on the London Stock Exchange. We find that a tick-size reduction leads to lower bid–ask spreads, lower trade values, reduced cost of trading at and beyond the best bid-offer, an acceleration of quote updates, an increase in aggressive trades and a reduction in price impact. Increased tick size widens spreads and increases trading costs. Step functions reveal that liquidity adjusts opposite to the tick change. To determine if impacts are proportional, we identify potential functions that predict cost changes with tick updates, implying that traders adjust their trade sizes according to the new tick levels.

Original language	English
Pages (from-to)	109-149
Number of pages	41
Journal	European Financial Management
Volume	29
Issue number	1
Early online date	12 Feb 2022
DOIs	https://doi.org/10.1111/eufm.12355
Publication status	Published - Jan 2023

Bibliographical note

© 2022 The Authors. European Financial Management published by John Wiley & Sons Ltd. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

MiFID II
resiliency
tick size
trading cost

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10.1111/eufm.12355Licence: CC BY

Publisher version (open access)Final published version, 2.1 MBLicence: CC BY

Cite this

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Impact of MiFID II tick-size regime on equity markets—Evidence from the LSE

Abstract

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Keywords

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