Fractional Versus Decimal Pricing: Evidence from the UK Long Gilt Futures Market

35 Pages Posted: 19 Apr 2003

See all articles by Owain Ap Gwilym

Owain Ap Gwilym

Bangor Business School

Ian D. McManus

University of Southampton - School of Management

Stephen Thomas

University of Southampton - School of Management

Date Written: January 12, 2003

Abstract

This paper analyses the impact of a move from fractional to decimal pricing in the UK Long Gilt futures market. The reduced tick size following decimalisation leads to an increase in price clustering. The bid-ask spread, measured in ticks, increases following the tick size reduction. However, due to a reduced tick value, the monetary value of the spread declines. There is a substantial reduction in mean trade size as reduced-depth orders become trades. The mean daily number of transactions increases, which is entirely consistent with increased volume and decreased mean trade size. The finer price grid does not result in higher price volatility.

Keywords: Decimalisation, Tick size, Price clustering, Bid-ask spreads, Trade size

JEL Classification: G12, G15

Suggested Citation

ap Gwilym, Owain and McManus, Ian D. and Thomas, Stephen, Fractional Versus Decimal Pricing: Evidence from the UK Long Gilt Futures Market (January 12, 2003). EFMA 2003 Helsinki Meetings. Available at SSRN: https://ssrn.com/abstract=391572 or http://dx.doi.org/10.2139/ssrn.391572

Owain Ap Gwilym (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

HOME PAGE: http://www.bangor.ac.uk/business/staff/owain_ap_gwilym.php.en

Ian D. McManus

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

Stephen Thomas

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom
+44 23 8059-3068 (Phone)
+44 23 8059-3844 (Fax)

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