Trading System Upgrades and Short-Sale Bans: Uncoupling the Effects of Technology and Regulation

43 Pages Posted: 27 Jan 2016 Last revised: 24 May 2017

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Pamela C. Moulton

Cornell University - SC Johnson College of Business

Roberto Pascual

Universidad de las Islas Baleares

Date Written: May 23, 2017

Abstract

We examine the market quality effects of technology upgrades juxtaposed with short-sale bans. Between 2011 and 2013, the Spanish Stock Exchange introduced a smart trading platform (SIBE-Smart) and colocation to facilitate high-speed trading, and they also imposed two short-sale bans. We find that the SIBE-Smart introduction, which occurs between the two short-sale bans, leads to reduced market quality. The introduction of colocation, which occurs during the second short-sale ban, improves market liquidity although it does not attract additional high-speed trading. Our results highlight how the effects of latency-reducing infrastructure improvements depend on, and differ across, different regulatory regimes.

Keywords: Technological Upgrades, SIBE-Smart, Colocation, Short-Sale Ban, High-Speed Trading, Equity Market Liquidity

JEL Classification: G14, L1

Suggested Citation

Chakrabarty, Bidisha and Moulton, Pamela C. and Pascual Gascó, Roberto, Trading System Upgrades and Short-Sale Bans: Uncoupling the Effects of Technology and Regulation (May 23, 2017). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2722525 or http://dx.doi.org/10.2139/ssrn.2722525

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Pamela C. Moulton

Cornell University - SC Johnson College of Business ( email )

Ithaca, NY 14853
United States

Roberto Pascual Gascó (Contact Author)

Universidad de las Islas Baleares ( email )

Ctra. de Valldemossa km 7,5
Departamento de Economia y Empresa
Palma, Baleares
Spain
+34 971 17 13 29 (Phone)
+34 971 17 23 89 (Fax)

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