The National Stock Exchange (NSE) has announced an important update to its trading parameters. Starting June 10, 2024, the NSE will implement a one paisa tick size for all stocks priced below ₹250 per share. This change, outlined in a circular dated May 24, 2024, aims to enhance price discovery in the market.
Some market participants believe this measure highlights the fierce competition between the NSE and the Bombay Stock Exchange (BSE) for market dominance. A tick size is the smallest price difference between consecutive bids and offers. This update, detailed in a circular dated May 24, 2024, aims to improve price discovery in the market.
The new tick size will apply to all securities listed under the EQ, BE, BZ, BO, RL, and AF series, excluding ETFs. Earlier, the tick size for these securities was five paise. According to the circular, the tick size for securities under the T+1 settlement will also apply to the T+0 settlement (series T0).
Along with the changes in the Capital Market (CM) segment, the NSE has announced updates to the Futures & Options (F&O) segment. The tick size for stock futures will now be tied to the underlying price in the CM segment and will be reviewed monthly. The closing price on the last trading day of the month will determine the tick size for the following month. This revised tick size will apply to all stock futures expiries, including Near-Month, Middle-Month, and Far-Month contracts.
The circular also notes that the tick size for stock options will remain unchanged, regardless of any modifications to the tick size of the underlying security in the CM segment and its corresponding stock futures.
The NSE circular mentioned that the tick size for securities trading will be available in the contract/spread master files, as per the circular.
This adjustment aims to improve trading efficiency and accuracy in price quotations. Aligning tick sizes with the underlying securities in the CM segment and applying these changes to stock futures demonstrates the NSE’s commitment to maintaining a competitive and efficient trading environment, according to the circular.
Overall Impact
The full impact of this change is yet to be determined. However, the NSE hopes that a smaller tick size will lead to a more efficient and fair market for affordable stocks, potentially attracting more investors to this segment of the market.
