This question is meaningful when applied to lower valued stocks like Unitech, Spicejet, Suzlon and so on which cost between Rs 10-30. I think 1 paise increment will increase the liquidity of the stock and will make it easier to get in and out of stock easily. This will increase the liquidity and and hence would increase the trading volume. Which would mean increased brokerage and taxes. So that makes everyone (trader, broker and govt) happy.
I know that this decision is taken by NSE and perhaps SEBI. Iām putting up this question hoping that someone here might be able to answer it for me.
Yep a 1 paise tick size will help in case of lower value stocks, I remember that there was a proposal put forward to the exchanges on the same some time back from the Broker association, but nothing has happened on this.
While it brings down the impact cost by reducing spread, IMHO this increases the complexity of order book maintenance on the exchange plus adds to slippage. Trading as we know it might not be the same when you have a lower denomination. Especially for traders who base their decision on the order depth. Currently, you always have a visibility of at least 20-25 paise. But when we have 1 paise tick, the order book depth can be as low as 5 paise. There are definitely pros and cons. But, I feel it is better not to alter trading patterns.
Like some futures are having 0.0025 tick size and currency derivatives, I believe setting up an appropriate tick size is a welcome from any trader. But exchange will not do it I suppose.
I suppose stocks with very less market price could do a reverse split application to increase share price if it becomes too less to meet exchange requirements.