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

Bidisha Chakrabarty, Pamela C. Moulton and Roberto Pascual

Journal of Empirical Finance, 2017, vol. 43, issue C, 74-90

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 (search for similar items in EconPapers)
JEL-codes: G14 L10 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:43:y:2017:i:c:p:74-90

DOI: 10.1016/j.jempfin.2017.05.004

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