Pseudo market-makers, market quality and the minimum tick size

Andrew Lepone () and Jin Boon Wong

International Review of Economics & Finance, 2017, vol. 47, issue C, 88-100

Abstract: This paper examines how a reduction in the minimum tick size affects the behaviour of pseudo market-makers and market quality. Consistent with prior findings, this study documents that bid-ask spreads and depth decline after a minimum tick size reduction; and the magnitude of tick size reduction influence the extent of the decrease. Empirical evidence from this research indicates that pseudo market-makers prefer lower-price stocks post-reduction, as the yield from quoting these spreads are higher. This is accompanied by a corresponding shift in trading activities, away from higher priced securities. Trading costs, measured using simulated market impact, decrease for large trades in the top price tier but increase otherwise.

Keywords: Minimum tick; Market quality; Bid-ask spreads; Market makers (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:47:y:2017:i:c:p:88-100

DOI: 10.1016/j.iref.2016.10.002

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