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Fractional versus decimal pricing: Evidence from the UK Long Gilt futures market

✍ Scribed by Owain Ap Gwilym; Ian Mcmanus; Stephen Thomas

Publisher
John Wiley and Sons
Year
2005
Tongue
English
Weight
130 KB
Volume
25
Category
Article
ISSN
0270-7314

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✦ Synopsis

This paper analyses the impact of a move from fractional to decimal pricing in the UK Long Gilt futures market, and thus offers a unique insight to tick size reduction and decimalization in a derivatives market setting. The reduced tick size leads to an increase in price clustering. The bid-ask spread, measured in ticks, increases following the tick size reduction. However, due to a reduced tick value, the monetary value of the spread declines. There is a substantial reduction in mean trade size as reduced-depth orders become trades. The mean daily number of transactions increases, which is entirely

The authors wish to acknowledge financial support from Inquire Europe. They are grateful for comments received from an anonymous referee as well as Charles Sutcliffe, Adrian Tschoegl, and participants at the Multinational Finance Society 2002 conference.

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