On bid and ask side-specific tick sizes

Bastien Baldacci, Philippe Bergault, Joffrey Derchu and Mathieu Rosenbaum

Papers from arXiv.org

Abstract: The tick size, which is the smallest increment between two consecutive prices for a given asset, is a key parameter of market microstructure. In particular, the behavior of high frequency market makers is highly related to its value. We take the point of view of an exchange and investigate the relevance of having different tick sizes on the bid and ask sides of the order book. Using an approach based on the model with uncertainty zones, we show that when side-specific tick sizes are suitably chosen, it enables the exchange to improve the quality of liquidity provision.

Date: 2020-05, Revised 2020-05
New Economics Papers: this item is included in nep-fmk and nep-mst
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