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Impact of a tick size reduction on liquidity: evidence from the Sydney Futures Exchange
Author(s) -
Alampieski Kiril,
Lepone Andrew
Publication year - 2009
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2008.00279.x
Subject(s) - tick size , market liquidity , futures contract , treasury , order (exchange) , market impact , futures market , economics , commonwealth , market maker , monetary economics , financial economics , reduction (mathematics) , business , market microstructure , finance , geography , mathematics , context (archaeology) , geometry , stock market , archaeology
This paper examines the impact of a reduction in the minimum price increment on liquidity and execution costs in a futures market setting. In 2006, the Sydney Futures Exchange halved the minimum tick in the 3 Year Commonwealth Treasury Bond Futures. Results indicate that bid‐ask spreads are significantly reduced after the change. Quoted depth, both at the best quotes and visible in the limit order book, is significantly lower after the tick reduction. Further analysis reveals that execution costs are significantly reduced after the change. We conclude that a tick size reduction improves liquidity and reduces execution costs in a futures market setting.