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Fails-to-Deliver before and after the Implementation of Rule 203 and Rule 204

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  • Archana Jain
  • Chinmay Jain

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.

Suggested Citation

  • Archana Jain & Chinmay Jain, 2015. "Fails-to-Deliver before and after the Implementation of Rule 203 and Rule 204," The Financial Review, Eastern Finance Association, vol. 50(4), pages 611-636, November.
    • Handle: RePEc:bla:finrev:v:50:y:2015:i:4:p:611-636
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    References listed on IDEAS

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    2. repec:uts:ppaper:2010:2 is not listed on IDEAS
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    2. Dmitriy Muravyev & Neil D. Pearson & Joshua M. Pollet, 2022. "Is There a Risk Premium in the Stock Lending Market? Evidence from Equity Options," Journal of Finance, American Finance Association, vol. 77(3), pages 1787-1828, June.
    3. Adrian W. K. Cheung & Hung Wan Kot & Eric F. Y. Lam & Harry K. M. Leung, 2020. "Toward understanding short‐selling activity: demand and supply," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2203-2230, September.

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