SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report DRAFT 9/14/2006
Table 5: Changes in Trading and Quoting Mechanics
This table summarizes how trading and quoting mechanics change when the tick and bid tests are removed. The
four months prior to the Pilot start date (May 2, 2005) are called the “Pre-Pilot” period and the six months following
the start date are called the “Pilot” Period. The table shows the average change in the number of down ticks and the
percent of time on a down bid for pilot and control stocks and estimates whether the pilot stocks changed more than
the control stocks. Paired t-tests determine whether the changes are significant. Tests of the difference between the
changes are two-sample t-tests. **, * indicates statistical significance at the 1 and 5% level in a two-tailed test. We
test whether the difference in the change for Listed Stocks is statistically different from that of Nasdaq NM Stocks
using a regression framework. During the Pilot Period, we run daily cross-sectional regressions of each variable on
an indicator for Pilot Securities and the variable’s pre-Pilot level (equation 1). We run the regression separately for
Listed and Nasdaq NM Stocks and test whether the coefficients on the Pilot indicator are similar. a, b indicates that
the average coefficient for Nasdaq NM Stocks is statistically different from the average coefficient for Listed Stocks
at the 1% and 5% level in a two-tailed test.
Panel A: Univariate Changes
Pilot Sample Control Sample Pilot Δ minus
Variable Market Pre-Pilot Pilot Δ Pre-Pilot Pilot Δ Control Δ
Downticks Listed 45.87 49.65 3.78** 45.84 45.01 -0.83** 4.61**
Downticks Nasdaq 50.61 50.10 -0.52** 50.60 49.60 -1.01** 0.49**
Downbids Listed 38.82 39.76 0.94** 38.74 39.50 0.76** 0.18
Downbids Nasdaq 47.06 45.64 -1.42** 47.44 48.02 0.58** -2.00**
Panel B: Average Regression Coefficients
Market Quality = α + β Pilot + β Pre Pilot Market Quality
i 1 i 2
Variable Market Pilot PrePilotControl R-squared
Downticks Listed 4.64** 0.46** 0.15
Downticks Nasdaq 0.49** a 0.47** 0.02
Downbids Listed 0.24** 0.87** 0.27
Downbids Nasdaq -2.06** a 0.84** 0.23
Prepared by the Office of Economic Analysis 64
DRAFT
i