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Understanding Short Sale Activity
Traders Magazine Online News, November 22, 2018
Understanding Short Sale Activity
Quality data is essential to well-functioning markets. Improving the availability, relevance and usefulness of data aligns with OTC Market Group’s mission to create better informed, more efficient financial markets. In our experience, short selling remains one of the most highly-debated topics among academics, companies, investors, market makers and broker-dealers. As a market operator and company CEO, I believe it’s critical to address the misconceptions that still exist around short sale data and the correlation to a stock’s fundamental value.
Short selling, the sale of a security that the seller does not own, has long been a controversial practice in public markets. Advocates for short selling believe it builds price efficiency, enhances liquidity and helps improve the public markets, while critics are concerned that it can facilitate illegal market manipulation and is detrimental to investors and public companies. Given the diverse range of opinions and opposing views, we believe the first step is to take a deeper dive into the data and help separate out the noise.
https://blog.otcmarkets.com/2018/11/13/understanding-short-sale-activity/
“The Reliable” - FINRA Equity Short Interest Data
The most accurate measure of short selling is the data reported by all broker-dealers to FINRA on a bi-weekly basis. These numbers reflect the total number of shares in the security sold short, i.e. the sum of all firm and customer accounts that have short positions.
This information is available on www.otcmarkets.com on the company quote pages. As an example, OTC Markets Group has a few hundred shares sold short on average, which represents a fraction of our daily trading volume and shares outstanding.
OTC Markets Group (OTCQX: OTCM) SHORT INTEREST Data
DATE |
SHORT INTEREST |
% CHANGE |
AVG. DAILY SHARE VOL |
DAYS TO COVER |
SPLIT |
NEW ISSUE |
09/28/2018 |
97 |
11.49 |
5,551 |
1 |
No |
No |
09/14/2018 |
87 |
8.75 |
4,423 |
1 |
No |
No |
08/31/2018 |
80 |
100.00 |
6,818 |
1 |
No |
No |
07/31/2018 |
103 |
-48.24 |
3,197 |
1 |
No |
No |
07/13/2018 |
199 |
-27.64 |
2,124 |
1 |
No |
No |
06/29/2018 |
275 |
166.99 |
3,239 |
1 |
No |
No |
06/15/2018 |
103 |
24.10 |
2,739 |
1 |
No |
No |
05/31/2018 |
83 |
-72.33 |
3,925 |
1 |
No |
No |
05/15/2018 |
300 |
1.69 |
3,944 |
1 |
No |
No |
04/30/2018 |
295 |
100.00 |
4,278 |
1 |
No |
No |
FINRA Rule 4560[1] requires FINRA member firms to report their total short positions in all over-the-counter (“OTC”) equity securities that are reflected as short as of the settlement date. In 2012 FINRA clarified that firms must report short positions in each individual firm or customer account on a gross basis[2] under FINRA Rule 4560. Therefore, firms that maintain positions in master/sub-accounts or parent/child accounts must calculate and report short interest based on the short position in each sub- or child account.
Since this data is part of a clearing firm’s books and records, it is of high quality and FINRA regularly inspects broker-dealer compliance with the rule. Of course, it would be great if this data was collected and published daily (with an appropriate delay).
“The Misleading” – Daily Short Volume
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