Sunday, July 27, 2014 6:50:40 PM
This is pretty simple if a broker dealer is used in completion of a transactions... ANY TRADE TRANSACTION.... It will be marked SHORT despite the retail position being NET LONG. I will provide examples:
1. Broker A has two customers, one selling 1 million shares of HESG and one customer wanting to buy 1 million shares of HESG, this trade will be marked "LONG" because there isnt a change in ownership, only the beneficial ownership is changed as to the exact customer. They call this "Internalized".
2. Broker A has a single customer selling 1 million shares of HESG, Broker B has a customer wanting to buy 1 million shares of HESG. Due to the fact they are not under the same brokerage system they requires a "DEALER" to complete the transaction. This Broker Dealer is going to sell to Broker B first 1 million shares of HESG in the INITIAL leg of the trade transaction. On a separate leg of the same transaction the Broker Dealer is going to buy from Broker A the 1 million shares. The Broker Dealer doesnt want to assume any risk for being stuck with shares, as there net goal at the end of the day is to be NET 0 shares. There for it must sell open first and then close on the buy transaction the actual shares thus assuming RISKLESS PRINCIPAL.
Because the broker Dealer doesnt OWN the shares in the transaction, remember Broker A does, and it certainly doesnt have PHYSICAL possession of those 1 million shares because once again Broker A does, the trade must be marked "Short" in accordance with SEC Rule 200. Doesnt matter one bit that both retail were NET LONG.
3. Broker A has a Block Position of 200 million shares, a Broker Dealer sells 10 million shares to Multiple brokers in smaller blocks then concurrently buys 10 million shares from Broker A. This transaction is marked SHORT because once again the broker dealer doesnt own the shares and doesnt have physical possession of them.
There are many more transactions and they all have the same outcome for Reg SHO Marking, only internalized orders here in the OTC are marked Long, that is it, everything else is marked SHORT. thus why Short Volume is of no use on it's own. Of course if one was concerned with delivery of shares and open positions then they would refer to the FINAL DISPOSITION of Reg SHO Report, called the Fails To Deliver report. That shows if all shares have in fact been delivered as required by T+3 in accordance with SEC Rule 204.
I certainly do not see that report posted here to show the final disposition of those Daily Short Volume reports... wonder why... Oh that is right it would ruin the whole short theory......
By the way look at this chart again, when you have liquidity here the short volume drops... Why? because there are far more INTERNALIZED orders when retail are flipping in and out of this security. However SHort volume moves up when the volume dries up, because there are less retail trading and therefore less internalized orders:
THE REAL DTCC DISCUSSION
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