FINRA Short Sale Reporting Explained. Spoke with the

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Mar 22, 2013 at 9:51 AM

FINRA Short Sale Reporting Explained.

Spoke with the staff at the FINRA's Corporations, Market Regulation
Department to get an explanation of the reports and what the infor-
mation is that they contain. Here is the information.

The bi-weekly reports are directly off the books of the corporation
(usually done by the transfer agent) for short sales that are open at
the close of the day, for the day three days earlier. For example, if
the reporting date is the 15th of August, then the information that is
presented is the 12th of August. If there are no open short sale trans-
actions as of the close of the 12th of August, then the report shows
0 (zero) open short sales. This report it therefore not a true reflection
of the actual short sales being transacted on any given day.

The Daily Short Sales reports, on the other hand, are a measure of
the daily short activity, with certain inconsistencies. It is a report off
the 'daily tape', which means it does not include any short sales that
occur in the pre-trade or post-trade periods. Further, as has been
discussed on this board previously, the short sales volume includes
MM short sales that may be covered within seconds of the transac-
tion. The requirement for this report was establihed by the SEC, but
the SEC has yet to require that FINRA seperate true short sales from
MM short sales for the purposes of liquidity.

Interpretation:
By working within the reporting dates of the biweekly reports, it is
possible to circumvent the spirit of the law required of reporting of
short sales. By closing out all short sales on the expected date of
the biweekly report, it will appear that there is little or no short
sales activity. MM's and shorters know this. Refer to the post
referenced below and see if it can be determined if the activity
changes because of an expected reporting date. Pay particular
attention to the days in which the percentage of short sales trans-
actions to overall volume is about 10% or less. Then review the
percentages on days where the biweekly reporting will not occur.
Suggest a pattern?

It was because of this circumvention of the spirit of the law that the
SEC required the daily short sales reports. Each transaction must
be marked as to whether it is a short sale, so each transaction could
be identified as to being a short true short sale or a MM's liquidity
short sale. However, the MM's have contended that such information
is proprietary and would give others information about their trading
stategies, placing the MM's at a disadvantage. (It must be okay for
investors to be at a disadvantage, but not okay for MM's.) As a com-
promsise to get the exchanges and MM's to report on a daily basis,
the SEC softened the daily reporting requirement that would have
required the seperation of 'liquidity' short sales from investors short
sales.

SHORTS data explained by FINRA...phone call 3 minutes ago i spoke to FINRA regarding their daily SHO list which seems to show 30-70 % off all the volume in thousands of stocks as 'short sales'. they explained the 2 factors which tend to inflate the short sale data beyond what is normally considered a short sale, i.e. a person or firm borrowing shares which are then sold.

1. all marketmaker sells to buyers for which the MM doesnt at that moment possess the stock would go onto the list. the shorts data is sent to SEC at time of execution, so during the course of a day, a MM may trade 20M shares of company xyz, of which 10M of those shares were initiated as short sales and the other 10M were buys to cover those shorts. despite the fact that their net position at the end of the day is flat, the data would show 10M shares as having been short sales.
this applies even to grey sheet stocks. despite the fact there is no MM making bids and asks, MM's can and do call around to other MM's to find willing sellers to match buy orders and vice-versa.

2. the other factor that could affect the daily short figure is very interesting. if a sale is being initiated by the holder of restricted 144 stock, even though the owner of those shares is technically a long, the sale is listed as a short sale because the actual certificates are not yet "clean" via the transfer agent.

they confirmed that in order to ascertain the true "open short" position one should look at the bi-monthly short report. it was also stated that any of the daily shorts which were not delivered within the prescribed time would definitely end up on the FTD lis

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