The Costs of Bypassing Regulatory Short Sale Restrictions? New Evidence from the Short Sale Circuit Breaker Rule 201

This paper examines the effects of the new short selling circuit breaker (SEC Rule 201) on firms with traded options. Over the full compliance period, we show that 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 increase in spreads only partially deters traders from using the options markets to bypass short sale restrictions. Including the full spread, the synthetic short-sale price discount is about 3%