One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations

摘要

This paper offers a systematic review of the empirical literature on the implicationsudof tick size changes for exchanges. Our focus is twofold: first, we are concernedudwith the market quality implications of a change in the minimum tick size. Second, we areudinterested in the implications of changes in the minimum tick size on market structure. Weudshow that there is a large body of empirical literature that documents a decrease inudtransaction costs following a decrease in the minimum tick size. However, even thoughudmarket liquidity increases, the incentive to provide market making activities decreases. Weuddocument a strong link between the minimum tick size regulations and the recent increaseudin high frequency trading activity. A smaller tick enhances the price discovery process.udHowever, the question of how multiple tick size regimes affect market liquidity in audfragmented market remains to be answered. Finally, we identify topics for future research;udwe discuss the empirical literature on the minimum trade unit and the recent calls for audminimum resting time for quotes.