Tick Size, Liquidity for Small and Large Orders, and Price Informativeness: Evidence from the Tick Size Pilot Program
94 Pages Posted: 4 Aug 2018 Last revised: 9 Mar 2019
Date Written: March 7, 2019
Using limit order books across all U.S. exchanges and Rule 605 data, we show that while the execution cost of small orders increases, liquidity for large orders improves after the implementation of the Tick Size Pilot Program. We explain these results by exploring several implications of the three rules included in the program. We find significant spillover effects on liquidity for small and large orders which extend beyond the top of the book. Finally, we show that the pilot program results in an improvement in pricing efficiency, an increase in trade size, and a decrease in the number of trades.
Keywords: Liquidity, Tick Size, Pilot Program, Pricing Efficiency, Bid-Ask Spread, Trading Cost
JEL Classification: G10, G14, G18
Suggested Citation: Suggested Citation