Unintended Consequences of Technological Innovation in Regulation: Evidence from the SEC's HTTPS Policy

The integration of modern information technologies into policies aimed at promoting market efficiency has raised concerns regarding the potential technological transition costs they impose on market participants. We examine this issue by analyzing the Securities and Exchange Commission's 2016 adoption of a more secure data communication protocol for its online repository of corporate disclosures. During the first year of implementation, some users failed to adjust to the new protocol, which prevented them from accessing electronic filings and drove them to search for alternative information sources. Our findings reveal that this inability to adapt to the policy impaired price informativeness for firms publishing new disclosures, as the additional costs of acquiring information diverted resources necessary for its interpretation. Surprisingly, we also uncover an indirect opposing effect: Technological transition costs reduced the cognitive capacity users allocated to reading other filings while processing a firm's new reports. This enhanced focus positively impacted the firm's price efficiency. Our results underscore the importance of managing technological transitions in regulatory frameworks and call for a more comprehensive evaluation of policies leveraging new technologies.