Implications of a reduction in tick size on short-sell order execution

Gordon J Alexander, Mark A. Peterson

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

The U.S. Securities and Exchange Commission is committed to having exchanges fully implement decimal pricing by April 9, 2001, and is also considering revising the Uptick Rule. We consider the likely impact of the pending smaller tick size associated with decimalization on the efficacy of this rule by examining the execution quality of NYSE short-sell orders immediately before and after the tick size was reduced from 1/8th to 1/16th in 1997. We conclude that, in general, short market orders will receive better execution after decimalization, but at-the-quote limit orders will receive worse execution, and suggest revisions to the Rule.

Original languageEnglish (US)
Pages (from-to)37-60
Number of pages24
JournalJournal of Financial Intermediation
Volume11
Issue number1
DOIs
StatePublished - Jan 1 2002

Keywords

  • Execution quality
  • Minimum price variation
  • Quote jumping
  • Rule 10a-1
  • Short-selling
  • Tick size
  • Uptick rule

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