A Tale of Two Consequences

Abstract

This article looks at the effect of the tick size changes by the Tokyo Stock Exchange on January 14, 2014, and July 22, 2014, on the TOPIX 100 index stocks. The intended consequence of the change is price improvement and shorter time to execution. The author examines at security level metrics, including the spread, trading volume, number of trades, and the size of trades to establish whether this goal is accomplished. An unintended effect might be the reduction in execution sizes, which would then mean that institutions with large orders would have greater difficulty in sourcing liquidity. He looks at a sample of real orders to see if the execution costs have gone up across the orders since the implementation of this change.