Author: S. Buti, B. Rindi, Y. Wen, I. Werner
The tick size, i.e., the allowed minimum size of a price variation, is at the center of the current regulatory debate as it affects competition for the provision of liquidity in public limit order book markets (PLB). We show that the effect of a reduction in the tick size is detrimental on spread, depth and traders’welfare for illiquid stocks, whereas it benefits liquid stocks.