SEC Rethinks the Penny Tick in Stock Trading | Hacker News Reader

SEC Rethinks the Penny Tick in Stock Trading

cnbc.com

8 pointsJumpCrisscross10 comments

Open articleView on HN

I think that the only effect of reducing fractions is to make prices more imprecise, specially of smaller companies.

For example in Brazil, the game console manufacturer TecToy, has its stock floating between 2 and 4 cents.

Seriously, 2 and 4 cents is a HUUUUUGE range, and neither is accurate to measure the company value.

But if you could value it in 0.0038215 probably it would be much better and with smoother changes.

Who would think that going from a minimum tick of 3.125 cents to 1 cent could be so harmful.

Colour me naive, because I'm not convinced by this narrative.

It's a story which gets pushed pretty hard by the more old-fashioned market makers, who are now getting out-competed by HFT/automated trading. Higher minimum tick is good for them as they earn money from the bid/ask spread, which necessarily has to be wider.

SEC rethinks decimals but has nothing to say on high frequency trading? Somehow increasing the spread is being considered but allowing trades to stay at the markets for 1 second is not? What is going on? Europe is enforcing 1/2 second trades: http://www.tradersmagazine.com/news/hft-high-frequency-tradi...

Do we really need market makers to have trades for less than 1 second anyway? That really contributes to liquidity in the markets?

> What is going on?

Regulatory capture is my bet.

It contributes to liquidity in that it allows market makers to quote tighter prices, since they have less risk of adverse selection.

Increasing the tick size hurts high frequency trading by making it costlier to rapidly enter and exit positions.

Not really - a lot of HFT earns money from liquidity provision, where a higher tick value would increase profitability, since they're entering and exiting trades passively attempting to earn the bid/ask spread.

So if I buy 1000 shares, I pay $10 in spread fees (1 cent per share)?

Generally speaking, yes - the spread is the cost of buying immediately.

There is no single price for a stock at any given time. There's a bid price, which is made up of unfilled buy orders, and an ask price, which is made up of unfilled sell orders. The difference between the two prices is the spread.

Imagine a stock is bid at $1.00, and offered at $1.02. If you want to buy it, you can have it for $1.02 immediately, since the ask price represents sell orders. If you want to avoid paying the spread, you could place a limit order at $1.00, hoping that someone less patient will sell to you. Alternatively, you could place a buy order at $1.01, which would make this the new market bid price. Again, your order will only be filled if someone else wishes to sell the same price.

Reply on news.ycombinator.com