Tick Size Regulation and Sub-Penny Trading

Sabrina Buti, Barbara Rindi (), Yuanji Wen and Ingrid M. Werner
Additional contact information
Sabrina Buti: University of Toronto
Yuanji Wen: Bocconi University
Ingrid M. Werner: OH State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We show that following a tick size reduction in a decimal public limit order book (PLB) market quality and welfare fall for illiquid but increase for liquid stocks. If a Sub-Penny Venue (SPV) starts competing with a penny-quoting PLB, market quality deteriorates for illiquid, low priced stocks, while it improves for liquid, high priced stocks. As all traders can demand liquidity on the SPV, traders' welfare increases. If the PLB facing competition from a SPV lowers its tick size, PLB spread and depth decline and total volume and welfare increase irrespective of stock liquidity.

JEL-codes: G10 G12 G20 G23 G24 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-fmk and nep-mst
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Citations: View citations in EconPapers (3)

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324862

Related works:
Working Paper: Tick Size Regulation and Sub-Penny Trading (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2013-14

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