SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report DRAFT 9/14/2006
Study Diether, Lee, and Werner
(2006)
Liquidity No impact on NASDAQ stocks.
NYSE: Larger quoted, effective,
and realized spreads, smaller
quoted ask depth, higher
relative bid depth, smaller buy
imbalances.
Volatility No increase in the majority of
the 26 different volatility
measures for Pilot Stocks.
NYSE: higher short term
volatility (15/5 variance ratio),
daily return volatility, trade to
trade return volatility, offer to
offer quote volatility, five-minute
bid and offer volatility, daily upside
and down-side semivariance.
The authors examine semivariance,
trade returns, bid
quote returns, and ask quote
returns for various time lengths:
trade to trade, quote to quote,
five-minute, fifteen-minute, and
daily. They also examine the
15/5 minute variance ratio.
Alexander and Peterson (2006) Wu (2006) SEC
NYSE: larger spreads, smaller
quoted ask depth, smaller quoted
bid depth, higher price impact
NASDAQ: larger spreads
No effect on effective spreads
No impact. The authors examine
six volatility measures: 5 minute
return volatility, semi-variance,
daily relative price range, Fama-
Franch three-factor model
idiosyncratic risk, CAPM
idiosyncratic risk, and implied
volatility.
Relative effective and quoted
spreads increase with pilot by
< 1 bps. This is statistically
significant only for small
stocks.
Smaller buy imbalances
across all market cap groups.
Offer depth declines for most
size groups.
Variance ratios did not
change with pilot.
Daily price range and intraday
price standard deviation do
not change.
Prepared by the Office of Economic Analysis 87 DRAFT
Listed: smaller quoted ask
depth in univariate and
regression.
Regression shows decrease in
both bid and ask. Some tests
show small increases or
decreases in realized liquidity.
Some evidence of an increase
in intraday volatility. This
appears to be driven by
smaller stocks as larger stocks
saw a decline in intraday
volatility during the pilot.
While average daily volatility
does not change, smaller
stocks experienced lower
volatility during the pilot as
larger stocks experienced an
increase.