Pipul... in essence,
the number of 'buys' vs 'sells' are cleared (matched) under the watchful eyes of an organization called the DTCC. This is *supposed* to ensure that the buy/sell ratio remains at 1:1. any descrepency in this ratio is reported to a list known as the REG SHO. if there are TOO many 'sells' (and thus a short position) vs the number of buys, a market maker (MM) then has 3 days (t+3) to find and buy the number of shares necessary to bring the ratio back to 1:1.
HOWEVER! due to some ridiculous SEC loopholes, MM's can choose to bypass the DTCC and go directly to another MM and 'clear' (match) the shares. This is known as EX-CLEARING. basically, MM's can then clear back and forth to each other, ad nauseum, without reporting to the DTCC and thus side step t+3 and reg sho. in doing this, the number of sells can increase immensely without having to offset the number of buys and basically never has to be revealed.
surprisingly its legal.... at least to the degree that it allows MM's to keep a particular equity liquid (if someone wants to buy a stock, the mm MUST sell the stock--even if they do not currently have the supply of stock to sell).
On the other side of that coin, these EX-CLEAR transactions do not HAVE to be reported to the DTCC and whats more is that the SEC provides rules that DISALLOW investigation into this. if a market maker employs ex-clearing as a Proprietary trading strategy to make money, and disclosing any part of that strategy would compromise their ability to genterate revenue, then per the SEC, they do not have to make these ex-clears visable to ANYONE.
hope this helps... feel free to ask questions.
HG>
