Abstract
This paper analyses the impact of a move from fractional to decimal pricing in the UK Long Gilt futures market, and thus offers a unique insight to tick size reduction and decimalization in a derivatives market setting. The reduced tick size leads to an increase in price clustering. The bid-ask spread, measured in ticks, increases following the tick size reduction. However, due to a reduced tick value, the monetary value of the spread declines. There is a substantial reduction in mean trade size as reduced-depth orders become trades. The mean daily number of transactions increases, which is entirely consistent with increased volume and decreased mean trade size.
Original language | English |
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Pages (from-to) | 419-442 |
Number of pages | 24 |
Journal | Journal of Futures Markets |
Volume | 25 |
Issue number | 5 |
DOIs | |
Publication status | Published - 2005 |