Anavex Life Sciences Corp (AVXL)

[wildcard235]

Hypothesis: Why the twice-monthly short report data doesn't correlate with the Stock-Loan-Borrow (SLB) interest rates for shorting stocks.

My assertion of a lack of correlation is just based on my general impression, not a mathematical study. I have suspected non-correlation a long time, and it has always puzzled me. I have finally come up with what I think might be a plausible explanation.

It has been my understanding that Market Makers (MM) open and close the vast majority of intra-day short sales, and that for the vast majority of their short sells, they buy-to-close within milliseconds. That may be true across all stocks in general, but "vast majority" is not 100%. Might there be circumstances where MMs can't buy-to-close quickly? That appears to be the case:

"For example, broker-dealers that make a market in a security generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market." https://www.sec.gov/investor/pubs/regsho.htm

So how can the twice-monthly short report for AVXL have increased from 3.6M shares shorted overnight as of 15Mar2021 to 7M as of 15Jun2021 while the SLB rates have remained very low and flat? There has been some dilution, but not nearly enough to account for this phenomena.

Taking into account how the share price of AVXL has trended sharply up from mid-March to mid-June, on substantial volume, I now suspect the answer is this: There is a sustained shortage of AVXL shares for sale. The market makers for AVXL have had to sell short during this sustained shortage in order to maintain a liquid market (the MMs primary responsibility), and the shortage has been large enough that it has lead the MMs to hold large numbers of shares at least overnight on occasion, and possibly for much longer. As market makers, they are allowed to legally sell naked shorts, so multi-day shorting by market makers gets reported twice-monthly, but without affecting the SLB rates.

If this hypothesis is correct, the 7M shorted shares of AVXL on 16Jun2021 does not represent a bearish public opinion that the price will soon drop substantially, it represents a very bullish public opinion that results in a shortage of shares being offered and forcing AVXL's MMs to hold multi-day naked shorts.

What do you think? Is this idea plausible? If not, where have I erred?