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In 1990, the NYSE amended its Rule 80A to restrict stock index arbitrage on days of large pric e movements.We,design empirical tests to evaluate the impact of Rule 80A on trading costs an d intermarket arbitrage. We find that Rule 80A significantly curtails--or “collars”-- index arbitrage activity. Despite the significant curtailment of index arb itrage activity, the cash and futures markets remain linked. Pricing discre pancies between the markets are simply eliminated less quickly. Our results are consistent with the hypothesis tha t information is conveyed from one market to the other by means other than formal arbitrage. We also find that trading costs in the stock market, a s measured by the average bid-ask spread for S&P 500 sto cks, do not change following the triggering of Rule 80A,in spite of the binding constraint on index arbitrage volume. Overall, Rule 80 A appears to have had little impact on trading costs and intermarket arbitrage despite significan t curtailment of index arbitrage volume. We have benefitted from the comments of Peter Locke, Lisa Meulbroek, Merton Miller, James Shapiro, Charles Trzcinka,

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