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Trading system upgrades and short-sale bans: Uncoupling the effects of technology and regulation

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  • Chakrabarty, Bidisha
  • Moulton, Pamela C.
  • Pascual, Roberto

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.

Suggested Citation

  • Chakrabarty, Bidisha & Moulton, Pamela C. & Pascual, Roberto, 2017. "Trading system upgrades and short-sale bans: Uncoupling the effects of technology and regulation," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 74-90.
    • Handle: RePEc:eee:empfin:v:43:y:2017:i:c:p:74-90
    DOI: 10.1016/j.jempfin.2017.05.004
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    More about this item

    Keywords

    Technological upgrades; SIBE-Smart; colocation; Short-sale ban; High-speed trading; Equity market liquidity;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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