Increasing the Tick: Examining the Impact of the Tick Size Change on Maker‐Taker and Taker‐Maker Market Models

33 Pages Posted: 20 May 2020

See all articles by Justin Cox

Justin Cox

Appalachian State University

Bonnie Van Ness

University of Mississippi

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: August 2019

Abstract

We investigate the effects of an increase in tick size on order and trading flow across market fee models. Using the pilot firms in the U.S. Securities and Exchange Commission's Tick Size Pilot Program, we document that trade and order volume declines on maker‐taker fee models after the tick size implementation. We find that the inverted fee models (taker‐maker) experience an increase in both trade and order volume. Additionally, we find that a tick size adjustment has a substantial influence on market participation in maker‐taker fee models. We also find that measures of both hidden and algorithmic trading decline with an increasing tick size, which is strongly moderated by the differences in the maker‐taker and taker‐maker fee models.

Keywords: tick size, maker‐taker, algorithmic trading, hidden liquidity

JEL Classification: G10, G12, G14, G18, L1

Suggested Citation

Cox, Justin and Van Ness, Bonnie and Van Ness, Robert A., Increasing the Tick: Examining the Impact of the Tick Size Change on Maker‐Taker and Taker‐Maker Market Models (August 2019). Financial Review, Vol. 54, Issue 3, pp. 417-449, 2019, Available at SSRN: https://ssrn.com/abstract=3601140 or http://dx.doi.org/10.1111/fire.12187

Justin Cox

Appalachian State University ( email )

416 Howard Street
Boone, NC North Carolina 28604
United States

Bonnie Van Ness

University of Mississippi

Oxford, MS 38677
United States

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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