Another Day, Another Collar : An Evaluation of the Effects of NYSE Rule 80a on Trading Costs and Intermarket Arbitrage

In 1990, the New York Stock Exchange amended its Rule 80A to restrict stock index arbitrage on days of large price movements. We find that Rule 80A significantly curtails--or quot;collarsquot;--index arbitrage activity. In spite of this curtailment in index arbitrage volume, we find that Rule 80A appears to have had little overall impact on trading costs and intermarket linkage, although pricing discrepancies between the markets do appear to be eliminated less quickly. Our results are consistent with the hypothesis that information is conveyed from one market to the other by means other than formal arbitrage