The security-specific, temporary approach to restrict short selling securities, also called the circuit breaker approach, will impact exchanges most, but broker-dealers and their vendors also must make systems changes to curtail messaging traffic.
Code that was developed before 2007 for a market-wide bid or price test is outdated and not up to the latency standards required by more recently developed complex trading systems.
Broker-dealers would prefer that the exchanges monitor and administer whichever test is adopted for short-sale orders and let the brokers deal with any exemptions as they did before 2007.
The cost of short-sale restrictions could be hundreds of thousands of dollars for individual firms and potentially millions of dollars across the industry at a time when budgets are slashed and IT staffs are decimated.
TowerGroup believes that all entities affected by restrictions on short selling should now be planning ways to marshal resources, regardless of which regulation options are adopted.
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