Subsidizing Liquidity with Wider Ticks: Evidence from the Tick Size Pilot Study

Using data from the 2016-2018 tick size pilot study, we examine the efficacy of using wider tick sizes to subsidize market-making in small capitalization stocks. We demonstrate that realized spreads decay quickly within the initial microseconds of a trade. The effect reduces the subsidy offered by wider tick sizes, particularly for non-HFT market makers. The profit subsidy from wider tick sizes is also compromised by a significant shift in...