Fractional versus decimal pricing: Evidence from the UK Long Gilt futures market

Owain ap Gwilym, Ian Mcmanus and Stephen Thomas

Journal of Futures Markets, 2005, vol. 25, issue 5, 419-442

Abstract: This paper analyses the impact of a move from fractional to decimal pricing in the UK Long Gilt futures market, and thus offers a unique insight to tick size reduction and decimalization in a derivatives market setting. The reduced tick size leads to an increase in price clustering. The bid‐ask spread, measured in ticks, increases following the tick size reduction. However, due to a reduced tick value, the monetary value of the spread declines. There is a substantial reduction in mean trade size as reduced‐depth orders become trades. The mean daily number of transactions increases, which is entirely consistent with increased volume and decreased mean trade size. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:419–442, 2005

Date: 2005
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