Tick Size Reductions effect on provisions of Liquidity : Research on the Stockholm Stock Exchange

The tick size of a security has acted as powerful tool for regulators to improve market quality, encourage trade, and create fair competition in trading venues. As a result, The Federation of European Securities Exchange (FESE) has long been concerned with finding an optimal tick size regime to implement across exchanges in Europe. From 2009-2010, The FESE and the Stockholm Stock Exchange (SSE) implemented the FESE tick size table 2 for 81 Large Cap stocks in a collaborative effort to enhance the overall market quality for all of its participants. This study investigates the FESE tick size table 2 that was implemented in October 2009 and June 2010 on the SSE and its impact on Large Cap stocks in term of liquidity. Through the measurement and analysis of the three commonly used features of liquidity (bid-ask spread, depth, and trade volume), the study suggests that the provisions of liquidity increased due to the implementation of the FESE tick size table 2 overall, improving market quality and encouraging trade amongst its participants