Scalpel or Hatchet? Program Trade Regulation
47 Pages Posted: 18 Jan 2010 Last revised: 25 Sep 2014
Date Written: September 18, 2009
This study addresses the effectiveness of program trade regulation by conducting an analysis of program trading restrictions during large market moves. To address this issue, we analyze the effect of sidecars (halts that only affect program trades) using intraday data from the Korean securities market. The Korean market and regulatory environment have several unique properties not available in US data that lend itself to such a study. We ﬁnd that sidecars, as currently designed, are not as effective at controlling the trade imbalance levels around large market movements as when program trade is allowed. Program trades, at least a subset, provide liquidity when it is at a premium. We conclude that program trade restrictions should be more carefully crafted as some program trades are market stabilizing.
Keywords: Asymmetric information, sidecar, trading halts, Korea, KOSPI, market microstructure, options, futures
JEL Classification: G12, G13, C14, G22
Suggested Citation: Suggested Citation