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

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  • Chakrabarty, Bidisha
  • Cox, Justin
  • Upson, James E.

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.

Suggested Citation

  • Chakrabarty, Bidisha & Cox, Justin & Upson, James E., 2022. "Tick Size Pilot Program and price discovery in U.S. stock markets," Journal of Financial Markets, Elsevier, vol. 59(PB).
    • Handle: RePEc:eee:finmar:v:59:y:2022:i:pb:s1386418121000409
    DOI: 10.1016/j.finmar.2021.100658
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    Cited by:

    1. Kee H. Chung & Chairat Chuwonganant, 2023. "Tick size and price efficiency: Further evidence from the Tick Size Pilot Program," Financial Management, Financial Management Association International, vol. 52(3), pages 483-511, September.
    2. Giuliano Graziani & Barbara Rindi, 2023. "Optimal Tick Size," Working Papers 688, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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    More about this item

    Keywords

    Tick size pilot program; Information share; Maker-taker; Inverted market; Dark market; Intermarket sweep orders;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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