Fractional versus decimal pricing: Evidence from the UK Long Gilt futures market

Ian McManus, Owain ap Gwilym, Stephen Thomas

Research output: Contribution to journalArticlepeer-review

13 Citations (SciVal)

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 languageEnglish
Pages (from-to)419-442
Number of pages24
JournalJournal of Futures Markets
Volume25
Issue number5
DOIs
Publication statusPublished - 2005

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