SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
Panel B shows the results for thirty minute returns. Measured relative to control stocks,
the pilot stocks experience no statistically significant increase in return correlation for any of the
thirty minute intervals examined.
In summary, returns in Listed Stocks are negatively serially correlated following both
positive and negative returns over short horizons and removing price restrictions increases this
negative correlation. The symmetry of these results is consistent with the volatility results
above. We find no statistically significant impact for Nasdaq NM Stocks.
E. Small and Low-Volume Stocks
The analysis presented heretofore analyzes Listed Stocks and Nasdaq NM Stocks
separately, but beyond this does not make any effort to ascertain whether the pilot may have a
disproportionate or qualitatively different effect on smaller or less liquid stocks. In order to
address these questions, we partition the sample into deciles according to market capitalization
and turnover. As described above in section V-E, we partition the sample into deciles before
separating them across markets, to ensure that Listed Stocks and Nasdaq NM Stocks in the same
decile are comparable. The sample sizes resulting from these decile partitions are reported in
Table 13. As the table indicates, the Listed Stocks are more concentrated in the higher deciles of
market capitalization, while the opposite is true for Nasdaq NM Stocks. However, both Listed
and Nasdaq NM Stocks have representation across all deciles of the two measures.
Tables 14 through 26 present our results analyzing how many of the results presented
earlier vary as a function of size and liquidity. As explained in section V-E, above, these tables
are based on a regression analysis where each model includes a pilot indicator and a pilot
indicator interacted with indicator variables for deciles one through nine. In this model, the
Prepared by the Office of Economic Analysis 51