Skip to Main content Skip to Navigation
Reports

Minimum Price Variations, Time Priority and Quote Dynamics

Abstract : This paper analyses the impact of a minimum price variation (tick) and time priority on the quote dynamics and on trading costs when competition for the order flow is dynamic. It finds that convergence to competitive prices can take time and that the speed of convergence is influenced by the tick size, the priority rule and the characteristics of the order arrival process. It also shows that a zero minimum price variation is never optimal when competition for the order flow is dynamic. The paper compares the trading outcomes with and without time priority. It shows that, for reasonable parameterizations, time priority reduces trading costs because it prevents equilibria in which uncompetitive spreads can be sustained. Finally, the paper relates (a) the trading costs to the speed with which liquidity suppliers react to their competitors' offers and (b) the dynamics of the best price in the market to the state of the book.
Complete list of metadatas

https://hal-hec.archives-ouvertes.fr/hal-00600249
Contributor : Antoine Haldemann <>
Submitted on : Tuesday, June 14, 2011 - 1:02:15 PM
Last modification on : Thursday, January 11, 2018 - 6:19:31 AM

Identifiers

  • HAL Id : hal-00600249, version 1

Collections

Citation

Thierry Foucault, Tito Cordella. Minimum Price Variations, Time Priority and Quote Dynamics. 2011. ⟨hal-00600249⟩

Share

Metrics

Record views

255