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SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

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Reg SHO Pilot Report 2/12/2007<br />

Table 6: Liquidity Measures<br />

This table summarizes how liquidity changes when the tick and bid tests are removed. The four months prior to the<br />

Pilot start date (May 2, 2005) are called the “Pre-period” and the six months following the start date are called the<br />

“Pilot Period”. The table shows the average change in various liquidity measures for Pilot and Control stocks and<br />

estimates whether the Pilot stocks changed more than the Control stocks. Paired t-tests determine whether the<br />

changes are significant. Tests of the difference between the changes are two-sample t-tests. **, * indicates statistical<br />

significance at the 1 and 5% level in a two-tailed test. We test whether the Difference in the Change for Listed<br />

Stocks is statistically different from that of Nasdaq NM Stocks using a regression framework. During the Pilot<br />

Period, we run daily cross-sectional regressions of each variable on an indicator for Pilot Securities and the<br />

variable’s pre-Pilot level (equation 1). We run the regression separately for Listed and Nasdaq NM Stocks and test<br />

whether the coefficients on the Pilot indicator are similar. a, b indicates that the average coefficient for Nasdaq NM<br />

Stocks is statistically different from the average coefficient for Listed Stocks at the 1% and 5% level in a two-tailed<br />

test.<br />

Panel A: Univariate Changes<br />

Pilot Sample Control Sample Pilot Δ minus<br />

Variable Market Pre-Pilot Pilot Δ Pre-Pilot Pilot Δ Control Δ<br />

Ask Depth Listed 15.04 12.24 -2.80** 18.81 22.02 3.21** -6.00**<br />

Ask Depth Nasdaq 21.23 26.63 5.40* 26.90 34.36 7.46** -2.05<br />

Bid Depth Listed 12.16 12.89 0.73 15.96 18.71 2.76** -2.03<br />

Bid Depth Nasdaq 21.41 28.44 7.04** 27.77 37.45 9.68** -2.65<br />

Quoted Spread (¢) Listed 6.82 7.25 0.43 5.64 6.02 0.37 0.06<br />

Quoted Spread (¢) Nasdaq 5.44 5.38 -0.06 5.59 5.93 0.34 -0.40<br />

% Quoted Spread Listed 18.82 19.74 0.92 18.10 18.18 0.08 0.80<br />

% Quoted Spread Nasdaq 26.61 27.90 1.29 28.40 29.62 1.22** 0.07<br />

Effective Spread (¢) Listed 4.92 5.22 0.29 4.48 4.67 0.19 0.11<br />

Effective Spread (¢) Nasdaq 5.22 4.92 -0.31** 5.29 5.27 -0.02 -0.29<br />

% Effective Spread Listed 16.28 17.56 1.29 14.83 15.63 0.80 0.50<br />

% Effective Spread Nasdaq 26.91 26.98 0.07 28.84 28.47 -0.37 0.40<br />

Panel B: Average Regression Coefficients<br />

Market Quality = α + β Pilot + β Pre Pilot Market Quality<br />

i 1 i 2<br />

Variable Market Pilot PrePilotControl R-squared<br />

Ask Depth<br />

Ask Depth<br />

Listed<br />

Nasdaq<br />

-5.26**<br />

-2.01**<br />

1.18** 0.82<br />

a<br />

1.11** 0.79<br />

Bid Depth<br />

Bid Depth<br />

Listed<br />

Nasdaq<br />

-1.42**<br />

-2.47**<br />

1.16** 0.82<br />

b<br />

1.13** 0.75<br />

Quoted Spread (¢) Listed -0.36* 1.35** 0.74<br />

Quoted Spread (¢) Nasdaq -0.31** 1.37** 0.75<br />

% Quoted Spread Listed 0.86* 1.13** 0.62<br />

% Quoted Spread Nasdaq 0.28** 1.11** 0.68<br />

Effective Spread (¢) Listed -0.12 1.51** 0.80<br />

Effective Spread (¢) Nasdaq -0.25** 1.31** 0.63<br />

% Effective Spread Listed 0.26 1.24** 0.43<br />

% Effective Spread Nasdaq 0.62** 1.12** 0.50<br />

Prepared by the Office of Economic Analysis 65<br />

i

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