Minimum Tick Size for 30-Year U.S. Treasury Bond Futures To Be Increased
CME Group announced plans to increase the minimum trading increment for U.S. Treasury Bond futures to 1/32nd from the current setting of 1/2 of 1/32nd, effective August 30.
“There is a renewed focus on the 30-Year contract due to the recent uptick in issuance in the long end of the Treasury curve,” said Robin Ross, CME Group Managing Director of Interest Rate Products. “Customer feedback indicates that increasing the tick size will broaden participation from active traders who provide much needed liquidity to this important sector of the Treasury market.”
From a previous post: (Tick) Size Matters
The Impact of a Tick Size Reduction on Market Quality: Evidence from the Sydney Futures Exchange
This paper examines the impact of a reduction in the minimum price increment on marketquality in a futures market setting. On 15 December, 2006, the Sydney Futures Exchange halved the minimum tick in the 3 Year Commonwealth Treasury Bond Futures. Results indicate that bid-ask spreads are significantly reduced after the change. Quoted depth, both at the best quotes and visible in the limit order book, is significantly lower after the tick reduction. Both trading volume and price volatility are not significantly affected. Further analysis reveals that execution costs are reduced after the change, with large institutional buy orders experiencing the most significant reduction. These results hold in the overnight trading session, are robust to seasonal patterns in futures trading and are robust to trading in substitute contracts. We conclude that a tick size reduction improves market quality in a futures market setting.
July 3rd, 2009 at 1:56 pm
So why up the min tick then?
Doesn’t make sense to me that more traders will participate based on tick size, unless you’re only really trying to draw in leveraged punters.
July 3rd, 2009 at 2:24 pm
Very low tick size means very little paper on the bid/offer and more frequent adjustment of the spread. Increasing the tick size won’t attract more players, it will make some flee, but it will make it easier to deal in bigger size in one go (at a higher cost). For the exchange it will reduce the messaging rate.