Tick Size Pilot Program and price discovery in U.S. stock markets

Abstract

We document significant changes in the relative price discovery of U.S. markets after the implementation of the SEC's Tick Size Pilot Program (TSPP). Controlling for the volume migration following the TSPP, we find systematic changes in the information share of markets, conditioned on their fee structure. Furthermore, these changes affect institutional trading. Analysis based on intermarket sweep (ISO) and non-sweep orders (NISOs) indicates that informed institutional trading using ISOs are the primary channel through which these changes transpire. These results are important for all studies that examine information propagation in financial markets and include the TSPP sample period.