Bursa Malaysia to reduce tick size effective 3 August 2009

There is a sudden news that effective 3 August 2009, Bursa Malaysia will reduce the structure of its tick size (minimum price variation between the stocks' buy and sell bid).

It is said that this move is to "in line with the current practice by global developed markets and more importantly, to create market depth, enable price discovery and boost liquidity in the local equities market."

This change will affect both the stocks as well as the equity exchange-traded funds (ETFs) listed in KLSE.

The new structure is as below:





I can foresee that the smaller tick size will make the price movement of stocks with higher price tend to be slower and more stable than before. It will be more difficult for them to hit a limit up or limit down, especially when the volume is high.

Perhaps there will be more counters going for split or bonus issue to lower down their stock price in order to maintain a lively price movement.

How will this impact on KLSE market sentiment? What will be the reaction of investors and traders? Soon we will be able to see.