NSE to launch 1 paisa tick size for stocks below Rs 250

The National Stock Exchange (NSE) has introduced one Paisa tick size for all stocks below Rs 250 per share. "Exchange has informed about revision in tick size of securities price below Rs 250 in Capital Market Segment (CM Segment) of NSE. The stock futures shall have the same tick size as applicable for underlying security in CM Segment," NSE stated.

The exchange said it will reduce the tick size to one paisa for securities priced below Rs 250 in the cash segment from 5 paisa currently. A tick size is the minimum price movement by which stock prices can change.

This follows a similar move by BSE last year where it had reduced the tick size to 1 paisa for stocks below Rs 100 in the cash segment.

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

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, James added.

"NSE's decision to reduce the tick size for stocks below Rs 250 is anticipated to enhance liquidity, foster better price discovery, and encourage innovative trading strategies. however, it may also escalate system load due to the large number of orders," said Arvinder Singh Nanda, Senior Vice President at Master Capital Services.

All securities - except ETFs - under EQ, BE, BZ, BO, RL and AF series will see their tick sizes change from the earlier tick of five paise, according to the NSE circular. The tick size for securities in T+1 settlement will also be applicable for T+0 settlement (series T0), the NSE circular added.

NSE informed that the tick sizes will be subject to review & adjustments every month, based on closing price of the last trading day of the month.

"The exchange shall review the tick size of underlying security on monthly basis. The closing price on the last trading day of the month in CM Segment shall be used to determine the tick size, which shall be made applicable for the next month. The determined tick size in the CM Segment shall be made applicable for the corresponding stock futures," it further stated.

The stock futures too will have the same tick size from July 8, as applicable in the cash market segment, and revisions in tick size will be applicable for all expiries, i.e. near-month, middle month and far-month, NSE added.