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Is it Time to Reduce the Minimum Tick Sizes of the E-Mini Futures?

41 Pages Posted: 3 Jan 2004  

Alexander Kurov

West Virginia University - College of Business & Economics

Tatyana Zabotina

University of Illinois at Springfield

Date Written: December 2003

Abstract

On the Chicago Mercantile Exchange (CME) so-called "E-mini" index futures contracts trade on the electronic GLOBEX trading system alongside the corresponding full-size contracts that trade on the open outcry floor. This paper finds that the current minimum tick sizes of the E-mini S&P 500 and E-mini Nasdaq-100 futures contracts act as binding constraints on the bid-ask spreads by not allowing the spreads to decline to competitive levels. We also find that, while exchange locals trade very actively on GLOBEX, they do not tend to act as liquidity suppliers. Taken together, our empirical results suggest that it is time for the CME to consider decreasing the minimum tick sizes of the S&P 500 and Nasdaq-100 E-mini futures contracts. A tick size reduction is likely to result in lower trading costs in the E-mini futures markets.

Keywords: Tick size, Spreads, Liquidity, Futures, Electronic trading

JEL Classification: G10

Suggested Citation

Kurov, Alexander and Zabotina, Tatyana, Is it Time to Reduce the Minimum Tick Sizes of the E-Mini Futures? (December 2003). Available at SSRN: https://ssrn.com/abstract=483162 or http://dx.doi.org/10.2139/ssrn.483162

Alexander Kurov (Contact Author)

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

Tatyana Zabotina

University of Illinois at Springfield ( email )

Springfield, IL 62703
United States

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