Starting June 10, the National Stock Exchange (NSE) will implement a one paisa tick size for all stocks trading below Rs 250 per share, as announced in a circular issued on May 24. This change aims to enhance price discovery and reflects the ongoing competitive dynamics between NSE and BSE for market leadership, as noted by market analysts.

A tick size represents the minimum price variation between consecutive bid and offer quotes. Additionally, beginning July 8, stock futures will adopt the same tick size as the cash market segment. This adjustment will apply to all futures contracts, including Near-Month, Middle-Month, and Far-Month expiries, according to the NSE circular.

The introduction of a one paisa tick size for stocks priced below Rs 250 is a strategic move by the NSE to improve the precision of price discovery. By allowing for smaller price increments, the exchange aims to facilitate more accurate and granular adjustments in stock prices, which can benefit both traders and investors. This finer tick size can lead to tighter bid-ask spreads, potentially reducing trading costs and increasing market liquidity.

This measure is also indicative of the intense rivalry between the NSE and BSE. Both exchanges are continuously seeking ways to attract more trading volume and market participants. By implementing a more competitive tick size, the NSE could draw traders who are looking for better price efficiency, thereby potentially increasing its market share.

Market participants are likely to view this change positively. Tighter spreads can lead to lower transaction costs, making trading more attractive. However, there could be some initial adjustments required for trading algorithms and systems to adapt to the new tick size.

Overall, the introduction of a one paisa tick size for lower-priced stocks and futures represents a significant step by the NSE to enhance market efficiency, attract more participants, and stay ahead in the competitive landscape of Indian stock exchanges.