Large tick sizes imposed on high-price stocks on the Korea Stock Exchange (KSE) are
significant binding constraints on bid-ask spreads. Nearly 60% of quoted spreads are equal to
the tick size for stocks with the largest tick size. The average spread of KSE stocks is smaller
than that of the matched sample of New York Stock Exchange (NYSE) stocks, although the
average spread of KSE stocks that belong to larger tick size groups is greater than that of
matched NYSE stocks. These results suggest that the KSE’s electronic limit order market
provides cheaper executions than the NYSE’s specialist system for our matched sample of
stocks, and the KSE could further reduce trading costs if the large tick sizes imposed on highprice
stocks are replaced with smaller ones.
