Tick Size Regulation and Sub-Penny Trading
Charles A. Dice Center Working Paper No. 2013-14
67 Pages Posted: 15 Sep 2013
Date Written: September 10, 2013
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.
Keywords: Tick Size, Sub-Penny Trading, Limit Order Books, Dark Pools, Internalized Trades
JEL Classification: G10, G12, G20, G23, G24
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network
By Hans Degryse, Mark Van Achter, ...
-
Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network
By Hans Degryse, Mark Van Achter, ...
-
Do Dark Pools Harm Price Discovery?
By Haoxiang Zhu
-
Dark Pool Trading Strategies, Market Quality and Welfare
By Sabrina Buti, Barbara Rindi, ...
-
Determinants of Volume in Dark Pool Crossing Networks
By Mark Ready
-
The Impact of Dark Trading and Visible Fragmentation on Market Quality
By Hans Degryse, Frank De Jong, ...
-
The Impact of Dark Trading and Visible Fragmentation on Market Quality
By Hans Degryse, Frank De Jong, ...
-
The Impact of Dark Trading and Visible Fragmentation on Market Quality
By Frank De Jong, Hans Degryse, ...
-
A Glimpse into the Dark: Price Formation, Transaction Cost and Market Share of the Crossing Network
By Mao Ye