Fractional versus decimal pricing: Evidence from the UK Long Gilt futures market

This paper analyses the impact of a move from fractional to decimal pricing in the UK Long Gilt futures market. The reduced tick size following decimalisation leads to an increase in price clustering. The bid-ask spread, measured in ticks, increases following the tick size reduction. However, due to a reduced tick value, the monetary value of the spread declines. There is a substantial reduction in mean trade size as reduced-depth orders become trades. The mean daily number of transactions increases, which is entirely consistent with increased volume and decreased mean trade size. The finer price grid does not result in higher price volatility. JEL Classification: G12, G15.