General Shortselling

(How) Do Price Tests Affect Short Selling?

In this paper we use recently published data from a pilot program under Regulation SHO to (1) examine how price tests further the stated objectives of short sale regulation and (2) analyze the effect of price tests on volatility, price efficiency, and liquidity, which are given by the U.S. Securities and Exchange Commission as areas of interest in weighing whether to remove these tests altogether. After comparing sampled matched pairs of pilot and control stocks, we find that such tests do not further the stated objectives of short sale regulation and that concerns about the suspension of price tests leading to an increase in market volatility and a degradation of price efficiency and liquidity are unfounded.

It's Sho Time! Short-Sale Price-Tests and Market Quality

We examine the effects of the SEC mandated temporary suspension of short-sale price-tests for a set of Pilot securities. While short-selling activity increased both for NYSE and NASDAQ-listed Pilot stocks, returns and volatility at the daily level are unaffected. NYSE-listed Pilot stocks experience more symmetric trading patterns and a slight increase in spreads and intraday volatility after the suspension while there is a smaller effect on market quality for NASDAQlisted Pilot stocks. The results suggest that the effect of the price-tests on market quality can largely be attributed to the distortions in order flow created by the price-tests in the first place. Therefore, we believe that the price-tests can safely be permanently suspended.

Economic Analysis of the Short Sale Price Restrictions Under the Regulation SHO Pilot

The goal of this study is to examine whether eliminating price restrictions has had any impact on market quality, broadly defined. We compute and compare various market statistics for pilot and control stocks both before and during the Pilot. The pilot stocks and control stocks are statistically similar prior to the Pilot. The analysis is conducted separately for both Listed Stocks and for Nasdaq NM Stocks to help distinguish the tick test from the bid test.