SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
Study Alexander and Peterson (2006) Diether, Lee, and Werner
(2006)
Returns No significant impact on returns
surrounding the announcement
date of the Pilot stocks, on the
initiation day of the Pilot, or during
the first month of the Pilot.
Conclusion Concerns about the removal of
the price tests leading to a
degradation of market quality are
unfounded. Price tests do not
further the stated objectives of
short sale regulation.
While the suspension of the
NYSE tick test is found to be
associated with larger
spreads and higher shortterm
volatility, this evidence is
consistent with the distorting
effects of the tick test on short
sellers (i.e., forcing them to
be liquidity suppliers) rather
than any benefit to investor
welfare.
Wu (2006) SEC
Tick test reduces short selling
and narrows the spread
primarily for small stocks.
Tick test does not seriously
constrain short sellers from
trading on their information.
Prepared by the Office of Economic Analysis 89
Listed pilot stocks had a 24
bps lower return than control
stocks on the initiation day of
the Pilot but had statistically
similar cumulative return during
the 6 months after the Pilot.
Most evidence shows that the
pilot had a minor effect. The
most intriguing results are in
volatility. Some evidence that
the tick test has a bigger effect
in small stocks.