Comment on Mahmoodzadeh’s Tick Size Change in the Wholesale Foreign Exchange Market

I had the pleasure to hear Dr. Soheil Mahmoodzadeh discuss his job market paper (Mahmoodzadeh & Gençay, 2015) recently at the University of Victoria Department of Economics seminar. The paper studies the effect of changes to tick size from pip to decimal pip for major currency pairs by the Electronic Broking Services (EBS) in 2011. EBS implemented the change in a way that provides a natural or quasi-experiment with observations on both treatment and control groups, before and after the change. The change to decimal pip added an extra decimal point to all orders, which created new opportunities for high frequency traders (HFT) that may benefit or hurt the market. Mahmoodzadeh and Gençay establish stylized facts about the market and address how the change in tick size effects measures of market quality.