| > Consider that statement in limit; if the queue was of infinite length, there would be no trade-through, and no adverse selection. E[PnL | is_filled_very_soon] and P(is_filled_very_soon) both decline monotonically in queue size assuming we remain at the back of the queue. E[PnL | is_filled_very_soon] starts off negative and gets more negative monotonically. P(is_filled_very_soon) starts high and asymptotes to 0 (but never reaches it assuming queue size remains finite). I will elaborate on the mechanisms behind queues being over-sized in large tick names: - I have estimation error in my theoretical fair value combined with an opportunity cost of pulling my order, so even if I think my order is negative EV I want to leave it in the queue unless that negative EV exceeds the opportunity cost. In small tick names I don't care about this estimation error because there's little to no opportunity cost of pulling an order, so I am much quicker to remove liquidity which incentives a sparse book. - Even if I get filled in a large tick name there's often resting size behind me that lets me scratch out, especially if in the market I'm trading I get the ack before the print shows in the public market data (in this case I am only competing with firms that have canary orders and I'm not sure how common that is outside futures arb). I personally see the biggest problem of large ticks being that it gives an advantage to prop firms that can pre-queue multiple levels in advance especially with GTC orders which gives them an advantage. I see the biggest problem of small ticks being that prop firms can dime genuine liquidity which is a form of front-running, again giving them a big advantage. Not sure exactly how this will net off in terms of rents collected. > a large percentage of U.S. equities volume already trades at mid or within the spread, both principally and on venue. There are far bigger fish to fry in the market structure debate. Agreed. Either way it's not very consequential. I'm 100% in favour of leaving it as-is in US equities though. I'm looking at the orderbooks now of cheap stocks with 50 bps tick sizes and the spreads are multi-ticks wide, so reducing that would achieve nothing except added complexity. |