SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report DRAFT 9/14/2006
Similarly, we keep stocks in our sample up until their last listed day even if they are
acquired or otherwise move to markets that do not apply the same rule (i.e., move to the Nasdaq
Capital Market, OTCBB, or the Pink Sheets) after May 2, 2005. We keep these stocks to avoid a
survivorship bias, which is a bias associated with finding higher average returns than actually
exist. We believe an analysis of the pilot would be particularly sensitive to survivorship bias and
we therefore, make every effort to reduce it. Further, if an issuer moves its listing from Nasdaq
to an exchange or from an exchange to Nasdaq, we keep the stock in the sample up until the
list/delist date. We do this so that our analysis does not confuse the effects of the tick test with
those of the bid test. Because we retain stocks in our sample until the stocks delist, our sample
size on our last sample day (October 31, 2005) is smaller than our sample size on the first pilot
day (May 2, 2005). In fact, we have about 88 fewer stocks in our sample on October 31 than we
do on May 2. Despite the drop in sample size, the pilot stocks comprise about 1/3 of the sample
stocks for both Listed and Nasdaq NM Stocks on October 31 as well as May 2.
B. Data and Sample Statistics
We examine these pilot and control stocks over a 210 day period in 2005. We examine
the 82 day period from January 29 to April 29 as the Pre-Pilot Period during which the pilot and
control stocks are subject to the same rules. The Pre-Pilot Period allows us to test whether the
pilot and control stocks appear similar when they are subject to the same rule and it gives us a
reference point to examine how the sample stocks change when the price restriction rules are
removed. In the results section, this period is compared to the 128 day period from May 2, the
first day of the pilot, to October 31, 2005.
Prepared by the Office of Economic Analysis 24
DRAFT