Nathan Halmrast

Ph.D. Candidate

University of Toronto

Trading Constraints: The Market Impact of Short Sale Circuit Breakers

Internet Appendix

(Job Market Paper)


On February 26, 2010, the U.S. Securities and Exchange Commission introduced a new circuit breaker rule which, when triggered, imposes temporary constraints on short sale trades. I provide empirical documentation of the impact to trading after this circuit breaker has been triggered. My testing frameworks include dynamic regression discontinuity (RD) and standard differences-in-differences (DD). The main focus of the study is on January - May of 2012, but I use the 2010 pre-compliance period as a placebo test to measure the impact of the amendment, and I also explore cross-border impacts experienced by interlisted securities. Using a DD analysis, I study standard market quality measures including depths and spreads. I find circuit breakers have a marked impact on most market measures for firms post circuit breaker. My RD analysis finds clear evidence of a discontinuity at the circuit breaker for some measures, but this discontinuity is not unique to the regulatory period. Pre-period trading behavior in the market often reacts similarly to an event which would trigger the circuit breaker under the amendment even though no circuit breaker has been triggered. One exception is the reaction of the market in terms of shares available at the ask. In the pre-regulatory period, a dramatic price decline is met with a large reduction in depth. After the implementation of the regulation I no longer find a reduction in depth post circuit breaker, and shares available at the ask increase instead of disappearing. Interlisted firms do not experience this change in depth or in the composition of their depth. This change in the composition of depth suggests that real liquidity diminishes after a circuit breaker has been triggered.


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Does Maker-Taker Pricing Incentivize Liquidity Provision: Evidence from the TSX

(with Katya Malinova and Andreas Park)


Many securities exchanges worldwide aim to incentivize liquidity provision by paying a maker rebate to limit order providers, upon execution of their orders, and by charging marketable order submitters a taker fee. The asymmetry of fees for different sides of a transaction distorts tradersí order submission strategies, and the role of the maker-taker pricing is controversial. We analyze the impact of maker-taker pricing on market quality, by studying the 2006 introduction of maker rebates on the Toronto Stock Exchange (TSX).Focusing on the less liquid stocks that trade only on the TSX, we find that quoted and effective spreads tighten, but depth declines. Benefits to liquidity providers decline, even after accounting for rebates, due to increased competition. Costs for liquidity demanders do not increase, even after accounting for the increased taker fees. Volumes increased, but may partly be driven by independent U.S. events.



Central Bank Mandates

(with Anita Anand and Albert Yoon)


This paper examines the legal mandates of central banks prior to and following the financial crisis of 2007- 08 and the effect that these mandates have on developed economies. We examine the mandates of central banks of 42 OECD and G20 members from 2002 to 2011. Across the sample, we find that most central banks have consistent, but not identical mandates. Most of these mandates create discretionary rather than affirmative (i.e. mandatory) responsibilities. In addition, we find that the total number of central bank mandates has increased dramatically, almost doubling over the time period studied, with the largest increase occurring in 2007. We question whether countries are forward thinking, increasing central bank mandates in advance of expected financial crises, or reactive, changing their legal mandates to reflect recent economic developments.