Increasing the Tick: Examining the Impact of the Tick Size Change on Market Fee Venues

Abstract

This paper investigates the effects of an increase in tick size on order and trading flow across market fee venues. Using the pilot firms in the SEC’s Tick Size Pilot Program, we document trade and order volume declines significantly on maker-taker fee venues after the tick size implementation. Further, our results indicate that the inverted fee venue, taker-maker, experiences a significant increase in both trade and order volume. Our results are consistent with Foucault, Kadan, and Kandel (2013) in that a tick size adjustment has a substantial influence in the market participation in maker-taker fee venues. Additionally, we analyze the effects of the tick size change on measures of hidden and algorithmic trading, finding that measures of both hidden and algorithmic trading decline with an increasing tick size, this is strongly moderated by the differences in the maker-taker and taker-maker fee venues.