NSE's tick size reduction to boost trading volumes, say stock brokers

Stock brokers have welcomed the move by the National Stock Exchange (NSE) to reduce tick size — or the minimum price movement possible — to one paisa for the stocks below Rs 250.

Effective June 10, the tick size for cash segment and their corresponding futures will be reduced from the current 5 paisa to one paisa.

Tick size refers to the least possible reduction or increase in the stock price. For instance, if the share is trading at Rs 100, the next possible level for buying it would now be Rs 100.01 instead of Rs 100.05 which is followed currently.

Stock brokers are of the opinion that the change will enhance liquidity and price discovery, lower costs, and boost trading volumes.

“By aligning the tick size with the underlying security prices, NSE is fostering a more competitive trading environment. This change will facilitate tighter spreads and encourage active market making, which is beneficial for both retail and institutional investors,” said Tejas Khoday, Co-founder & CEO, FYERS.

The stock exchange said that it will review the tick size on a monthly basis.

“With current tick sizes, low-priced stocks might experience larger jumps in price due to limited increments. Lower tick sizes can smoothen price movements, leading to a more accurate reflection of underlying value,” said Sarvjeet Singh Virk, MD and Co-Founder, Shoonya by Finvasia.

NSE’s move comes a year after its rival BSE changed the tick size to one paisa for stocks below Rs 100. BSE took the step in March last year a few months before the relaunch of its index derivatives in May.

Over the last few months, NSE has taken proactive steps which have given steam to the rivalry between the two exchanges, such as reducing the cost on index derivatives and launching new products.