Abstract

This paper investigates the relationship between the minimum price variation and market quality variables for 3 interest rate futures contracts on the Sydney Futures Exchange. Intraday trade and quote data are obtained for the period 4 January 2000 and 1 February 2002, which includes the change in transparency on 19 January 2001. Analysis of the frequency distributions of bid and ask quote variations show a high frequency of these variations posted at 1 tick in the sample periods. Analysis of the quoted bid-ask spreads also show a high frequency of spreads posted at 1 tick. These evidence suggest that the tick sizes for these futures contracts are too large. Examination of the relationships between dollar spreads and dollar ticks provide further evidence that dollar spreads are constrained by the tick size. Dollar spreads are found to be positively related to dollar ticks, average quoted depth and trade price volatility, and negatively related to traded volume.

Keywords: Minimum price variation, tick, depth, volatility, bid-ask spread, futures market

How to Cite:

Tan, A., Frino, A. & Jarnecic, E., (2007) “Analysis of the Tick Size and the Impact of Varying Dollar Ticks on Market Quality – Evidence from the Sydney Futures Exchange”, Australasian Accounting, Business and Finance Journal 1(4), 1-39. doi: https://doi.org/10.14453/aabfj.v1i4.2