Circumventing SEC Rule 201 short sale restrictions with options

Lorne Switzer

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: This paper provides evidence on the ease and relatively low cost, relative to the potential benefits of circumventing the short selling circuit breaker regulations (SEC Rule 201) using options. Stocks with traded options react more negatively on short sale restriction trigger days relative to their counterparts without traded options. Short sale circuit breaker events are associated with increases in put and call options spreads as well as put-call parity violations. The paper estimates a discount of a synthetic short position to the prevailing stock price when Rule 201 is triggered of about 3%.

Keywords: Short selling circuit breaker; Options trading; Trading costs (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 G18 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s154461232300363x

DOI: 10.1016/j.frl.2023.103991

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