Scalpel or Hatchet? Program Trade Regulation

47 Pages Posted: 18 Jan 2010 Last revised: 25 Sep 2014

See all articles by Woo-Baik Lee

Woo-Baik Lee

Korea Open University

Jong Won Park

University of Seoul

Steven J. Jordan

Econometric Solutions

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

Lee, Woo-Baik and Park, Jong Won and Jordan, Steven J., Scalpel or Hatchet? Program Trade Regulation (September 18, 2009). Available at SSRN: or

Woo-Baik Lee

Korea Open University ( email )

86 Daehak-ro

Jong Won Park

University of Seoul ( email )

Korea, Republic of (South Korea)

Steven J. Jordan (Contact Author)

Econometric Solutions ( email )

3520 Fossil Park Dr.
Fort Worth, TX NA 76137
United States

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