Concerning the finra numbers, below is a post I made on the den a while back explaining how completely meaningless the daily finra short numbers are. You either believe in the FLD concept or not. The finra numbers will tell you nothing about whether it is working or not.
Posted by: Ninja7 Member Level Date: Friday, July 16, 2010 8:36:49 PM
In reply to: hermon munster who wrote msg# 265687 Post # of 274999 Send a link via email Share on Facebook Tweet this post
Actually the finra numbers are almost completely useless. It is theoretically possible to have 100% legitimate sells show up as 100% shorts in the daily numbers...below is an explanation of the meaning of the finra numbers I posted a while back...
Unfortunately, the finra numbers are never really going to tell you anything useful about what is going on. For one, naked shorts will often not show up in the numbers. Market makers have many ways to hide what they are doing and manipulate the finra numbers. Clearing outside of the DTCC is one example. Another is the fact that where and how a share is counted in the numbers varies. For example, both "real" buys and "real" sells can show up as shorts in the count depending on where they are counted.
Consider someone selling shares through their broker, there are two legs to the transaction, the MM selling the shares into the market and the MM taking ownership of the shares from the broker. There is also a third case in which the MM just buys the shares from the broker to complete the sale and holds them (MM's can take both short and long positions in a pinkie stock and often do). In this sell case, if the leg of the sell transaction from MM to eventual buyer (the market) is counted, the sell will (somewhat surprisingly) appear as a short. If the buy from the broker to MM leg (or the buy to hold by the MM) is counted, the sale will not appear as short. Only one leg of the transaction will appear in the daily numbers.
Buy transactions are equally confusing as they also have two legs. The leg from the market to MM and the leg from MM to broker. If the leg from market to MM is counted, the buy not will show up as short (as the MM bought shares). If the leg from MM to broker is counted, it will show up as short (as the MM sold shares to the broker). There is also a third case in which the MM sells its own inventory to complete the buy (which will probably not show up as short) and a fourth case in which the MM sells shares it doesn't have (naked shorts) to complete the sale. This last case is what makes the FLD possible (and also why MM's are legally allowed to naked short to make a market).
In general, the finra numbers are supposed to tally only the "consolidated tape" transactions, that is the transaction legs between the MM and the market (not the legs between MM and brokers). If this is true and the MM's behave accordingly (lol), legit sells should always show up as shorts in the counts.
In other words, the daily numbers really tell you nothing useful (longer trends can be a bit interesting but are often still very misleading).
You either believe in the FLD concept or you don't. The finra numbers really won't help much to tell whether it is working or not.
Anyway, that's my two cents on the finra numbers and what they mean.
