One Size Fits All? High Frequency Trading, Tick Size Changes and the Implications for Exchanges: Market Quality and Market Structure Considerations

Athanasios Verousis, Pietro Perotti, Georgios Sermpinis

Research output: Contribution to journalArticle

5 Citations (Scopus)


This paper offers a systematic review of the empirical literature on the implications of tick size changes for exchanges. Our focus is twofold: first, we are concerned with the market quality implications of a change in the minimum tick size. Second, we are interested in the implications of changes in the minimum tick size on market structure. We show that there is a large body of empirical literature that documents a decrease in transaction costs following a decrease in the minimum tick size. However, even though market liquidity increases, the incentive to provide market making activities decreases. We document a strong link between the minimum tick size regulations and the recent increase in high frequency trading activity. A smaller tick enhances the price discovery process. However, the question of how multiple tick size regimes affect market liquidity in a fragmented market remains to be answered. Finally, we identify topics for future research; we discuss the empirical literature on the minimum trade unit and the recent calls for a minimum resting time for quotes.

Original languageEnglish
Pages (from-to)353-392
Number of pages40
JournalReview of Quantitative Finance and Accounting
Issue number2
Early online date27 Mar 2017
Publication statusPublished - 1 Feb 2018


  • High frequency trading
  • Market quality
  • Microstructure
  • Minimum trade unit
  • Tick size
  • Trading costs

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

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