SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
rule was impeding price discovery on the index relative to the futures contract, and that
conditional volatility for the index declined with the elimination of the uptick rule.
Overall, this evidence seems to indicate that tick tests can lead to narrower bid ask
spreads, but impedes price discovery, while the bid test should not have any discernable effect on
market quality. The construction of the Pilot study improves upon the design of these previous
studies and allows us to study these issues in a more controlled environment.
IV Construction of the Samples
A. Selection of Pilot and Control Stocks
The stocks in the pilot sample are those specified in the Pilot Order. 45 Stocks were
selected for this sample by sorting the 2004 Russell 3000 first by listing market and then by
average daily dollar volume from June 2003 through May 2004, and then within each listing
market, selecting every third company starting with the second. Because the selection process
relied on average daily dollar volume, companies that had their initial public offering in May or
June of 2004, just prior to the Russell reconstitution, were not included. The 32 stocks that are
not listed on the NYSE, Amex, or Nasdaq NM were also excluded prior to sorting and selecting
the pilot stocks.
While no companies have moved in and out of the Pilot, the pilot stocks might experience
ticker symbol changes, listing changes, and mergers. We collected the necessary change
information from NYSE, Amex, and Nasdaq, who keep track of and disseminate these changes.
In the case of mergers between pilot and control stocks, the status of the resulting company is the
same as the status of the company with the larger market capitalization of equity on the day prior
to the first merger announcement. The pilot stocks that did not survive to the start of the Pilot on
45 SEC Release No. 34-50104, July 28, 2004.
Prepared by the Office of Economic Analysis 22