(How) Does the Uptick Rule Constrain Short Selling?

Abstract:     
Regulation SHO is designed to allow for tests of how the uptick rule effects trading, as it temporarily suspends the rule for a pilot sample of NYSE-listed stocks. Relative to a matched control sample, pilot stocks have similar rates of return, short trading volume, price volatility, and measures of market efficiency. At the microstructure level, short sales for pilot stocks have (1) smaller trade sizes but more trades, (2) lower execution prices, (3) larger price impacts, and (4) similar effective spreads. Interestingly, these orders face significantly larger quoted spreads along with significantly smaller bid and, more notably, ask depths.

Keywords: Short selling, uptick rule, Regulation SHO

JEL Classification: D02, G12, G18

working papers series