Eighths, sixteenths, and market depth: changes in tick size and liquidity provision on the NYSE

Eighths, sixteenths, and market depth: changes in tick size and liquidity provision on the NYSE Using limit order data provided by the NYSE, we investigate the impact of reducing the minimum tick size on the liquidity of the market. While both spreads and depths (quoted and on the limit order book) declined after the NYSE's change from eighths to sixteenths, depth declined throughout the entire limit order book as well. The combined effect of smaller spreads and reduced cumulative limit order book depth has made liquidity demanders trading small orders better off; however, traders who submitted larger orders in lower volume stocks did not benefit, especially if those stocks were low priced. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Eighths, sixteenths, and market depth: changes in tick size and liquidity provision on the NYSE

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Abstract

Using limit order data provided by the NYSE, we investigate the impact of reducing the minimum tick size on the liquidity of the market. While both spreads and depths (quoted and on the limit order book) declined after the NYSE's change from eighths to sixteenths, depth declined throughout the entire limit order book as well. The combined effect of smaller spreads and reduced cumulative limit order book depth has made liquidity demanders trading small orders better off; however, traders who submitted larger orders in lower volume stocks did not benefit, especially if those stocks were low priced.

Journal

Journal of Financial EconomicsElsevier

Published: Apr 1, 2000

References

  • Liquidity and market structure
    Grossman, S.J.; Miller, M.H.
  • Liquidity provision with limit orders and a strategic specialist
    Seppi, D.J.

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