Plato Partnership (‘Plato’), the not-for-profit member organisation bringing creative solutions and efficiencies to today’s equity marketplace, published independent academic research titled “Tick Size, Market Quality, and Market Structure.” The research has been commissioned as part of Plato’s MI3 Market Innovator initiative, which aims to advance market transparency and efficiency through commissioning independent academic research on key topics chosen by the committee.

The research has been conducted by Giovani Cespa, Professor of Finance at Bayes Business School, City, University of London.

The tick size, which is defined as the minimum price increment by which securities can be quoted, plays a pivotal role in shaping market dynamics and trading costs. Cespa’s survey delves into the intricate relationship between tick size, market quality, and market structure, shedding light on its impact on liquidity provision, trading behaviour, and corporate activities.

Mike Bellaro, CEO of Plato Partnership, said, “Tick size is a fundamental aspect of market design that influences various facets of financial markets, from trading costs to corporate decision-making. Cespa’s research provides invaluable insights into how changes in tick size affect market quality and structure, offering crucial guidance for market participants and regulators alike.”

Key highlights of the research include:

• Analysis of the impact of tick size variations on liquidity provision and trading costs.
• Examination of how regulatory interventions and competitive pressures influence market quality.
• Insights into the implications of tick size changes on corporate activities such as managerial learning from stock prices and shareholder monitoring.

Cespa’s research underscores the complex interplay between tick size, market quality, and market structure, highlighting the importance of a nuanced understanding of these dynamics in shaping effective market regulation and trading strategies.

The release of this research underlines Plato’s ongoing commitment to fostering collaboration and innovation in financial markets. As part of its MI3 Market Innovator initiative, Plato continues to support independent academic research aimed at enhancing market transparency and efficiency.

The full research paper, “Tick Size, Market Quality, and Market Structure” by Giovanni Cespa, is available for free and public access on the Plato Partnership website here.

Source: Plato Partnership