Cascadia Investments (CDIV)

[loanranger]

"if a stock is shorted 60% daily all positions cannot be covered"

I know it sounds dopey, but the term "shorted" as used in the reported figures does not mean the same thing as we, as inadequately informed retail investors, have come to know it to mean. FINRA, in its hamhanded effort to provide transparency and enhance the knowledge of investors, has done just the opposite with this report.

Here is the best explanation that I've seen, courtesy of David Patch, of how that "short" number is created. Don't be surprised if you are disappointed....it's a complicated mess (I am totally incapable of any clarifications....I've highlighted what I think is the meat of it):

Short Sale Volume Reporting’s are deceiving.

I spoke to FINRA today and found out some very interesting things that until now I did not fully understand. I knew there was something wrong with this transparency of information but was not 100% sure what it was. I think I have my answer and it was enlightening.

I was first directed to the Notice to Members memo dated 9/29/2009

http://www.finra.org/Industry/Regulation/Notices/2009/P120045

The individual I spoke with wanted to make clear that to maintain proper trade volume reporting accuracy, a trade with multiple legs in the trade would only be reported once in the volume reports. The example given would be.

Investor A is long 100 shares and wants to sell. They enter the order through their broker that is routed to a market maker. That market maker will go out and sell the stock into the market before they have bought the stock from you/your broker to close out their account. They do not take possession first as there is no guarantee they can sell the order into the market. By this Notice, the actual sale INTO the market is a short sale because the market maker sold the stock into the market BEFORE they had purchased the stock from you. It is a technicality since they know there position will be closed out minutes later when they go in and buy your shares. To avoid doubling up on trade volume and distorting the picture, only the sale into the market (consolidated tape) is recorded and not the second leg which was the sale transaction between seller and market maker.

So, this is why the short sale volume is high but also why the FTD’s and bi-Monthly short interest reports are not showing any indications of this volume. The short isn’t really a short it is the execution of a long sale by a market maker. The key language in the FINRA notice is this:

The Daily Short Sale Volume File will provide daily access to the aggregate volume of short sales in NMS Stocks and OTC Equity Securities reported to a consolidated tape and traded over-the-counter during regular trading hours on each trading day.

Consolidated tape is the open market where the transaction between seller and market maker is not done at the consolidated tape. That call this the media transaction.

Now for those wondering about Bona-Fide Market Making, I found out it can still be done but not electronically. The 15c-211 applies to electronic trade. Market Makers can continue to execute Bona-Fide Market making through phonic transactions but those sales made would be reported in the short interest reports bi-monthly and if not closed out will be reported as FTD’s in the system like any other trade failure.

Hope this helps at least clear up the high short interest volume reports seen. The reason the number is not 100% is because not all orders are routed thru independent market makers.
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