Tick Size Pilot Program and the Information Structure of US Stock Markets

Abstract

We evaluate the information structure of US markets after the implementation of the SEC tick pilot program. We find significant changes in the information structure of the market conditioned on the market fee structure. Maker-taker market volume flow increases in informational efficiency while inverted and dark markets remain unchanged for the first two pilot groups. In the third pilot group, inverted volume flow drops in informational efficiency while dark markets increase. Maker-taker volume efficiency remains constant for group 3 firms. Our analysis based on intermarket sweep orders and non-sweep orders on these markets indicates that ISO’s are the primary driver of changes in the information structure of markets. Our results indicate the implementation of the trade-at rule may harm price discovery.