SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
marginal effect of the pilot is captured through two channels, first through the pilot indicator
variable, and secondly through the interacted indicator variable. To facilitate interpretation, the
tables report the sum of the coefficients on the pilot dummy and the interacted terms. This way,
the entries in the table show directly how the pilot sample differs from the control sample within
each decile.
Table 14 shows how the tick and bid tests affect short selling volume for stocks in each
size and turnover decile. Removing the rules increases short selling volume in almost every size
and volume decile. Further, the tick test appears to hinder short selling slightly more in small
stocks than in large stocks. The bid test, on the other hand, appears to hinder short selling
slightly more in large stocks than in small stocks. The affect of the tick and bid tests appear
unrelated to turnover level. According to the Nasdaq market share results in Table 15, the
removal of the bid test on Nasdaq seems to increase Nasdaq’s market share more for small stocks
than for large stocks. Overall, the tick and bid tests do seem to have differing affects on short
selling for stocks of varying sizes.
In results not reported in tables, only the tick test has a differential effect on the balance
of trading in stocks of differing sizes while all other mechanical effects are similar across size
and activity levels. The tick test has a bigger effect on the symmetry of trading in smaller stocks
but a constant effect on the symmetry of trading in stocks of varying activity levels.
Tables 16 and 17 show whether the augmentation of the bid and ask depth is similar for
large and small stocks. These patterns are qualitatively similar in both tables. The tick test
augments depth across almost all size and activity levels without clearly augmenting large or
small stocks more. The bid test’s influence on depth, however, varies widely across size and
Prepared by the Office of Economic Analysis 52