Heterogeneity and Competition in Fragmented Markets: Fees Vs Speed Articles uri icon

publication date

  • September 2021

start page

  • 143

end page

  • 177


  • 28

International Standard Serial Number (ISSN)

  • 1350-486X


  • This paper provides an integrated overview of the effects of the
    implementation of the SEC's Tick Pilot program on liquidity and
    competition in U.S. markets, separated into three groups by tick
    size. We confirm the standard effects of tick size changes on quoted
    spreads, realized spreads, and depth, as well as the role of the size
    of the quoted spread prior to the change in tick size. We add that
    the increase in the tick size leads to a significant reduction in the
    frequency and magnitude of price changes, primarily driven by
    a reduction in the frequency of aggressive limit orders. The major
    effect of the tick size is to alter competition by driving trading
    volume to inverted fee and off-exchange venues. We find that
    traders prefer a larger price improvement rather than lower latency
    for the smallest tick stocks while the reverse is true for largest tick
    stocks. Overall, the effect of the tick change has an insignificant
    effect on volume except for stocks with the smallest tick sizes
    subject to the trade-at rule, who see a substantial drop in volume.


  • Law


  • market quality; tick size; heterogeneity; colocation; tick pilot; latency