We find that market efficiency increased and the arbitrage link between index futures and the stock market strengthened after June 24, 1997, when the New York Stock Exchange reduced the minimum change for stock prices and quotes from an eighth to a sixteenth of a dollar. There has been a substantial increase in the number of arbitrage trades reported to the Securities and Exchange Commission (SEC) since the reduction in the minimum price increment. The average number of stocks traded and the average dollar amount underlying each arbitrage trade increases and decreases, respectively. The average index futures mispricing error (MPE) that triggers arbitrage is lower and reverts to zero more quickly. © 2004 Elsevier B.V. All rights reserved.