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NSE lowers tick size to 1 paisa: Over 1,300 stocks to be impacted

Analysts believe a lower tick size can bolster price discovery and market efficiency, rendering trading more appealing for both retail investors and traders.

NSE, National Stock exchange

Photo: Bloomberg

Rex Cano Mumbai

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The National Stock Exchange (NSE) on Friday announced that it shall reduce the ticket size, also commonly known as the tick size, for stocks valued up to Rs 250 per share.

The current tick size for stocks traded on the NSE is Rs 0.05 or 5 paisa. The NSE intends to reduce the tick size to Rs 0.01 or 1 paisa; which means, the buyers and sellers can then place orders to buy and sell stocks below Rs 250 in multiple of 1 paisa; for e.g. Rs 101.01 and so on.

As per the NSE media release, all stock in the cash segment under Rs 250 along with the corresponding stocks traded in the futures segment, but excluding stock options, will be traded with the 1 paisa tick size.

NSE competitor, the Bombay Stock Exchange (BSE), already has the 0.01 tick size, but for stocks only below Rs 100 in value.

Analysts believe that a lower tick size, especially in case of lower-valued shares helps in better price discovery.

Kranti Bathini, Director-Equity WealthMills Securities says its a welcome step from the NSE. Lower tick size will help in improve the spreads, and the volumes too can rise.

Meanwhile, NSE's release stated that the lowered tick size shall be applicable for new listings as well. The exchange shall determine the eligibility for all such shares as of the last trading day of a particular month.

Arvinder Singh Nanda, Senior Vice President at Master Capital Services said the NSE's move to lower the tick size aims to bolster price discovery and market efficiency, rendering trading more appealing for both retail investors and traders.

Moreover, the tick size in the stock futures segment will align with that of the underlying security in the cash market. This alteration will empower investors to devise novel strategies tailored to the smaller tick sizes, particularly for lower-priced securities, Arvinder Singh Nanda added in the note, while cautioning that the said move may also escalate system load due to the large number of orders.

Anand James, Chief Market Strategist, Geojit Financial Services recommends a lower tick size could be a step towards bringing in more tightness in the quotes, especially in the lower priced stocks. 

"As markets have been in a prolonged uptrend, smaller stocks have systematically found more activity as is evident in the widening of bid ask. For example, the percentage of stocks in NSE with bid ask greater than 0.15 per cent has climbed from 56.8 per cent at the start of this year, to 59.2 per cent now. A drastic change is not expected though, but is a welcome step as volatility expectation has gone up, with VIX trading well above 20 for sustained periods, the analyst said in a note.

The new tick size rule on the NSE will be applicable from June 10 onwards in the cash segment, and July 08 onwards in stock futures segment. NSE shall review the tick size of underlying security on a monthly basis.

In case of a corporate action such as bonus, stock split, dividend or rights issue, the existing tick size will continue for the stock, till the time of the monthly review, post which it may be revised if need be.

As of 24 May 2024, nearly 50 per cent of the NSE stock quoted below Rs 250 per share. Out of a total of 2,749 stocks traded on Friday, 1,381 had closed below the Rs 250 threshold.

Meanwhile, out of 4,290 stocks traded on the BSE on the same day, as many 1,935 quoted below Rs 100-mark.

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First Published: May 27 2024 | 1:05 PM IST

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