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We examine the market quality effects of technology upgrades juxtaposed with short-sale bans. Between 2011 and 2013, the Spanish Stock Exchange introduced a smart trading platform (SIBE-Smart) and colocation to facilitate high-speed trading, and they also imposed two short-sale bans. We find that the SIBE-Smart introduction, which occurs between the two short-sale bans, leads to reduced market quality. The introduction of colocation, which occurs during the second short-sale ban, improves market liquidity although it does not attract additional high-speed trading. Our results highlight how the effects of latency-reducing infrastructure improvements depend on, and differ across, different regulatory regimes.


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© Elsevier. Final version published as: Chakrabarty, B., Moulton, P. C., & Pascual, R. (2017). Trading system upgrades and short-sale bans: Uncoupling the effects of technology and regulation. Journal of Empirical Finance, 43, 74-90. doi:10.1016/j.jempfin.2017.05.004
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