The National Stock Exchange (NSE) said on Friday that it will cut the ticket size, also known as the tick size, for equities priced 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 aims to cut the tick size to Rs 0.01 or 1 paisa, allowing buyers and sellers to submit orders to purchase and sell stocks for less than Rs 250 in multiples of 1 paisa, such as Rs 101.01 and so on.
According to the NSE media release, all cash and futures stocks under Rs 250, except stock options, would be traded using a 1 paisa tick size.
The NSE’s counterpart, the Bombay Stock Exchange (BSE), already uses the 0.01 tick scale, but only for stocks worth less than Rs 100.
Analysts feel that a smaller tick size, particularly in the case of lower-valued shares, aids price discovery.
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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.
The new tick size rule on the NSE will be applicable from July 08, 2024 onwards, based on the closing price of June 2024. NSE shall review the of underlying security on a monthly basis.
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In case of a corporate action such as bonus, stock split, dividend or rights issue, the existing 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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