On modelling tick size regulation consequences using imitation models of financial market

Technological and regulatory changes in the last two decades transformed the nature of the financial markets. Increased automation of the investment processes has led to a significant increase in the turnover of assets and capital in markets. Modern markets are characterized by a high degree of fragmentation, system instability, and unstable dynamics with increased sensitivity to shocks. In such conditions, there is a question about scientifically regulation of the market and prediction consequences of such regulation. To fulfill this purpose, the regulators have wide range of tools, but one of the most important tools is a setting minimum price change. Question about predict the consequences of such regulation is not new, but only now it can be approached by the use of empirical simulation models of the market. The use of this class of models in the financial sector has become possible relatively recently, when there was access to the high frequency and transaction information in financial markets, and the development of computer systems has enabled the large-scale numerical simulations. This article describes the issues associated with the minimal price change and simulation models for financial market. We analyze the properties of the order flow and offer method of accounting effects of changes in tick size. We discuss the possible applications of this technique to predict the effects of financial market regulation.