Friday, September 08, 2006

Failure to Deliver

Next week is the deadline to register comments on the Security and Exchange Commission’s Regulation SHO. The SEC has scheduled a roundtable discussion of the Reg SHO Pilot on September 15, 2006.

In my post “
On the Calendar,” I mentioned the SEC’s solicitation of comments on the a pilot project intended to explore whether trading efficiency could be improved by suspending the so-called Uptick rule on a set of “pilot” stocks. The topic appears to be a burning issue only for academics, judging by the comments received thus far.

One of the most interesting comments came from Gary James, author of “The Unofficial Rules of Security Lending,” who provided an example of a “fail to deliver” transaction. He lays the onus for such broken transactions at the feet of the broker who does not “buy-in” the broker that has “failed to deliver.”

Another interesting comment was lodged by a doctoral student at Texas University, Julie Wu. Ms. Wu provided the preliminary results of her investigation of price efficiency in NYSE stocks included in the SEC’s Reg SHO Pilot. She determined that “Pilot stocks experienced increased shorting volume and wider spreads.” Her study also indicates that small cap stocks were affected most heavily.

Roundtable will be held in the SEC headquarters in Washington, DC. While not broadcast live, the SEC's proceedings are typically made available on the SEC web site.

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