Fails‐To‐Deliver Before and after the Implementation of Rule 203 and Rule 204

26 Pages Posted: 26 Oct 2015

See all articles by Archana Jain

Archana Jain

Rochester Institute of Technology

Chinmay Jain

University of Ontario Institute of Technology

Date Written: November 2015

Abstract

We study the determinants of fails‐to‐deliver in the period before and after the implementation of Rule 203 (elimination of option market maker exception from the locate and close‐out requirement) and Rule 204 (t+3 close‐out rule) in September 2008. We find a positive relation between short selling and fails‐to‐deliver that weakens after the implementation of these rules. Fails‐to‐deliver are higher for stocks with low institutional ownership, low book‐to‐market, small market capitalization, high turnover, and put option availability. The relation between short selling and these measures of borrowing costs is also weaker after the implementation of these rules.

Keywords: fails‐to‐deliver, short selling, borrowing costs

JEL Classification: G10, G18

Suggested Citation

Jain, Archana and Jain, Chinmay, Fails‐To‐Deliver Before and after the Implementation of Rule 203 and Rule 204 (November 2015). Financial Review, Vol. 50, Issue 4, pp. 611-636, 2015, Available at SSRN: https://ssrn.com/abstract=2679131 or http://dx.doi.org/10.1111/fire.12093

Archana Jain

Rochester Institute of Technology ( email )

Rochester, NY 14623
United States

Chinmay Jain (Contact Author)

University of Ontario Institute of Technology ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

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