U.S. Tick Size Pilot
Fisher College of Business Working Paper No. 2017-03-018
Charles A Dice Center Working Paper No. 2017-18
61 Pages Posted: 22 Sep 2017 Last revised: 17 Mar 2019
Date Written: March 14, 2019
Abstract
The U.S. equity markets recently increased the tick size from one to five cents for smaller capitalization stocks. We show that the larger tick size raised the cost for retail-sized liquidity demanding orders by almost fifty percent, and raised profits to liquidity providers by forty percent. The bulk of the effects occurred for tick-constrained stocks for which trading costs more than doubled. Trading costs for unconstrained stocks declined by more than ten percent. Finally, we document significant changes in market quality for control stocks relative to similar stocks that were not part of the study.
Keywords: U.S. Tick Size Pilot, JOBS Act, tick size, market quality, trading activity, liquidity provision
JEL Classification: G12, G14
Suggested Citation: Suggested Citation