Deviations in expected price impact for small transaction volumes under fee restructuring

TL;DR

This paper investigates how a fee restructuring on the Johannesburg Stock Exchange caused unexpected increases in price impact for small trades, revealing deviations from the established master curve and proposing a rescaling method for practitioners.

Contribution

It identifies deviations in price impact for small volumes after fee changes and introduces a liquidity-based rescaling method to recover the master curve.

Findings

Price impact for small trades increased unexpectedly after fee reduction.

A liquidity proxy can rescale price impact data to recover the master curve.

Rescaling provides a practical tool for estimating price impacts without detailed tick data.

Abstract

We report on the occurrence of an anomaly in the price impacts of small transaction volumes following a change in the fee structure of an electronic market. We first review evidence for the existence of a master curve for price impact on the Johannesburg Stock Exchange (JSE). On attempting to re-estimate a master curve after fee reductions, it is found that the price impact corresponding to smaller volume trades is greater than expected relative to prior estimates for a range of listed stocks. We show that a master curve for price impact can be found following rescaling by an appropriate liquidity proxy, providing a means for practitioners to approximate price impact curves without onerous processing of tick data.