A Rs 40 stock trades with a 5 paise tick, a one-tick spread and deep queues. If the tick is cut to 1 paise, what happens to the spread, to displayed depth, and to the value of queue priority for a passive strategy?

The spread narrows from 5 paise to about 2, the depth at each price thins sharply, and queue priority loses most of its value. The old tick was binding, so queues were long. With 1 paise prices, the same liquidity spreads across several levels, perhaps 12,000 shares each instead of 60,000 at one price. Anyone can now step ahead of a resting order for 1 paise instead of 5, so Dvipantar earns less per fill and its queue position protects it far less.

Picture a car park that charges only in Rs 50 steps. Everyone pays Rs 50 for the first hour, even those who would have paid Rs 20, and the queue at the barrier is long because nobody can compete on price. A spread that sits at exactly one tick with 60,000 shares waiting on each side tells you the same thing: traders would quote inside 5 paise if the rules let them, so they compete on time in the queue instead. The queue priorityThe rule that among orders at the same price, the one that arrived first is filled first. is the only way to be filled first at 39.95, and at 3,000 shares a minute a newcomer waits about 20 minutes behind the queue.

Traders who were waiting at 39.95 now bid 39.96, 39.97 and so on, and sellers do the same from 40.00 down. The spread falls to the width liquidity providers actually need, which for a liquid stock is probably 1 to 3 paise, not one new tick. Assume the same 60,000 shares within 5 paise of the mid on each side, spread evenly over five prices: the touch now shows about 12,000 shares instead of 60,000. Displayed depth at the best price falls by around four fifths, even though total depth near the mid is unchanged.

Small takers gain clearly. A 10,000 share market buy used to pay 2.5 paise over the mid, Rs 250; after the change it pays about 1 paise, Rs 100. Large takers gain less, because they now walk through several thin levels: a 30,000 share buy fills at an average of about 39.998, 1.8 paise over the new mid, Rs 540 against Rs 750 before. Passive providers such as Dvipantar lose twice: the half-spread they earn falls from 2.5 paise (6.25 bps) to about 1 paise, and the adverse selection they suffer on each fill does not shrink with it.

With a 5 paise tick, the only way to get ahead of Dvipantar's order at 39.95 was to bid 40.00, which is the offer: impossible without crossing the spread. A good queue position was a protected asset. With a 1 paise tick, any rival can step in front by bidding 39.96 at a cost of 1 paise, so being early in the queue buys little and fast repricing becomes the competition. The strategy that earned a steady 2.5 paise by queueing now needs to reprice constantly, earns about 1 paise, and faces more informed traders picking off its stale quotes. The honest prediction for Dvipantar is thinner margins and a speed race, not a free improvement.

State the limitation. The 2 paise spread and even spreading of depth are assumptions; the real outcome depends on how many providers compete and how informed the flow is. The direction of each effect is robust; the sizes need the first weeks of data after the change.