A short is a short is a short, MM or not. Need to
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Posted On: 08/05/2022 12:33:31 PM
A short is a short is a short, MM or not. Need to mark a short to the market as a short. A sell is marked a sell. However a cover is simply marked a buy so no way to differentiate covers from buys.
Any short will be in the short volume. You just won't know when that short has been closed out. So you can have 50% short volume but all of those shorts may have been closed out the same day (to your point) for all you know. Every 2 weeks you get the snapshot of public short interest (but that doesn't include swap shorts or I believe non-FINRA regulated entities).
Warning - read on for in the weeds:
MM has an exception where valid locate is not required prior to shorting in connection with bona fide market-making activities - aka they can legally naked short to keep the market operating properly.
HOWEVER, MM's are NOT exempt from close-out requirements. Us plebeians need to deliver stock by settle date (T+2), MM's have 3 more if they shorted using the above exception (T+5). If the stock hasn't been delivered by then, the short needs to immediately be closed out (aka cover/buy) in the open market at the beginning of the next trading day.
Exceptions (there always are...) - if the security in question is already on the threshold list (I'm lazy - just look here for definition - https://www.investor.gov/introduction-investi...ecurities) - THEN the broker/dealer has 13 settlement days to deliver the shares, otherwise must close out on morning of 14th settlement day.
Long story "short" (haHAHAHAH!) - shorts must have valid locates and/or be delivered appropriately otherwise it will be bought in eventually.
As for MGK's response re 130% interest etc - that confused the heck out of me...all I know is us retail traders certainly can't short stocks unless our broker (TD or whomever) can locate the shares. If you are short, you stay short until you cover it (or don't have enough cash in your account to remain short if the price goes up), and you keep paying the borrow cost until you do. Exception (always...) is if the long stock that your broker located for you to be able to short, all of a sudden is sold...then your broker needs to locate new stock to replace it...if they can't, they can issue a buy-in notice to you and close out the short since they will be in a fail to deliver state.
#micdrop
Any short will be in the short volume. You just won't know when that short has been closed out. So you can have 50% short volume but all of those shorts may have been closed out the same day (to your point) for all you know. Every 2 weeks you get the snapshot of public short interest (but that doesn't include swap shorts or I believe non-FINRA regulated entities).
Warning - read on for in the weeds:
MM has an exception where valid locate is not required prior to shorting in connection with bona fide market-making activities - aka they can legally naked short to keep the market operating properly.
HOWEVER, MM's are NOT exempt from close-out requirements. Us plebeians need to deliver stock by settle date (T+2), MM's have 3 more if they shorted using the above exception (T+5). If the stock hasn't been delivered by then, the short needs to immediately be closed out (aka cover/buy) in the open market at the beginning of the next trading day.
Exceptions (there always are...) - if the security in question is already on the threshold list (I'm lazy - just look here for definition - https://www.investor.gov/introduction-investi...ecurities) - THEN the broker/dealer has 13 settlement days to deliver the shares, otherwise must close out on morning of 14th settlement day.
Long story "short" (haHAHAHAH!) - shorts must have valid locates and/or be delivered appropriately otherwise it will be bought in eventually.
As for MGK's response re 130% interest etc - that confused the heck out of me...all I know is us retail traders certainly can't short stocks unless our broker (TD or whomever) can locate the shares. If you are short, you stay short until you cover it (or don't have enough cash in your account to remain short if the price goes up), and you keep paying the borrow cost until you do. Exception (always...) is if the long stock that your broker located for you to be able to short, all of a sudden is sold...then your broker needs to locate new stock to replace it...if they can't, they can issue a buy-in notice to you and close out the short since they will be in a fail to deliver state.
#micdrop
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