Replies to post #32192 on NewStream Energy Technologies Group Inc (NSGP)

[BigBake1]

Short Volume is not NSS, I highly recommend a little more research into what short volume really is. Start with SEC Rule 200, 202 and 203, with a high concentration on Rule 200 since that is what defines the scope of “marking” specific trades. You will find marking has nothing to with NSS or short positions but in fact simply a determination of ownership. Ownership is all that is being defined in the marking of short volume and due to how the OTC market works with MM repping retail, high short volume numbers are meaningless.

Anytime a MM is used by a broker to achieve the best price for your trade transaction results in the MARKING of a trade as being short in accordance with SEC Rule 200. This ownership marking is simply the initial trade transaction between two parties out of three involved in the trade transaction. The neutral party is required to mark the trade “short” due to their non ownership of the actual shares involved in the trading process and or does not reasonably expect delivery of said shares upon settlement date. A good example is the following type trade:

I have 20,000 shares of CCTC on the best Ask currently at .049, you want 10,000 of those shares and place an order with your broker. Your broker electronically searches for internal orders that may match your order within your own brokerage. If not it is sent out to an ECN and the contracted MM that represents your broker for trade transactions on the market. Now the MM repping your broker receives your request for 10,000 shares of CCTC and knows I have 20,000 shares available, and immediately practices “Risk Exposure” by executing the initial trade to you for 10,000 shares.

That initial trade is “short” as the MM does not own the shares and is marked as such, and is recorded to the CONSOLIDATED TAPE. Yet nearly simultaneously that MM has also purchased 10,000 of my shares on the Ask as that is the best execution in accordance with your order transaction that you created. That transaction is reported to the NON TAPE TRANSACTIONS to prevent duplication of volume reported, since the sum of the transaction is simply taking 10,000 shares and shifting that OWNERSHIP from me to you and that is all.

Short volume reporting however does not mitigate the initial trade transaction, as FINRA only records how the trade is initialized and that is all. It does not matter that within nano seconds the trade is completed with actual shares from a long position trade. FINRA monitors how the initial trade transaction started and that is all. To achieve a final execution of the entire trade requires using a different report, that is the Fails to Deliver report, which defines any trade that has not been settled on T+4 day. Settlement issues range from delivery of shares to even the money side of the transaction and are not defined to be specific to any cause as many variables create Fails to Deliver.

The SEC is very clear that there are no specific causes for Fails to Deliver and that one cannot conclude with certainty using the data. The exact clause written on the SEC FTD page is as follows:

Please note that fails-to-deliver can occur for a number of reasons on both long and short sales. Therefore, fails-to-deliver are not necessarily the result of short selling, and are not evidence of abusive short selling or “naked” short selling.

http://www.sec.gov/foia/docs/failsdata.htm

Pretty crystal clear as to what cannot be determined by the data, just as one cannot conclude looking at short volume as to short positions, NSS and or even Abusive NSS, the data cannot provide a specific cause and one must use other reports to determine specifics. For example one must use the Bi Monthly Short INTEREST report to determine actual SHORT POSITIONS taken against CCTC, that is the only report that can provide that information. Just like the FTD report must be used to see actual aggregate fails of shares that have not settled from trading from T+4 up to T+13. Yet again one cannot determine that actual cause of those failures.

Continuous Aggregate Fails that do not settle may implicate settlement issues with the security, however one must also read and understand SEC Rule 203 and some of the previsions allowed for certain transactions. For example, debt and warrant holders that recently converted new shares to free trading may in fact sell shares into the market before the actual restricted legend is removed from the cert. The SEC recognizes this and has written in SEC Rule 203 an exemption to delivery of up to 35 days after the trade transaction. You commonly see Reg SHO flags caused by these PIPE Finances and claims of short squeezes coming, but the reality is that someone is dumping shares on the market before their shares have been fully released.

Pursuant to the suggestions of other commenters, we are including an additional exception from the uniform locate requirement of Rule 203(b)(1) for situations where a broker-dealer effects a sale on behalf of a customer that is deemed to own the security pursuant to Rule 200, although, through no fault of the customer or the broker-dealer, it is not reasonably expected that the security will be in the physical possession or control of the broker-dealer by settlement date, and is thus a "short" sale under the marking requirements of Rule 200(g) as adopted.70 Such circumstances could include the situation where a convertible security, option, or warrant has been tendered for conversion or exchange, but the underlying security is not reasonably expected to be received by settlement date.71 Rule 203(b)(2)(ii) as adopted provides that in all situations, delivery should be made on the sale as soon as all restrictions on delivery have been removed, and in any event no later than 35 days after trade date, at which time the broker-dealer that sold on behalf of the person must either borrow securities or close out the open position by purchasing securities of like kind and quantity.

As you can see if one takes the time and actually reads the SEC Rules and understands why they are marking these transactions short it has nothing to do with an actual position, but in fact a requirement to determine ownership of the actual shares in the transaction for monitoring and surveillance.

As adopted, an order can be marked "long" when the seller owns the security being sold and the security either is in the physical possession or control of the broker-dealer, or it is reasonably expected that the security will be in the physical possession or control of the broker or dealer no later than settlement. We added the language "reasonably expected" because we acknowledge that it may be difficult for a person to know with certainty at the time of sale that a security will be in the possession or control of the broker-dealer prior to settlement. However, if a person owns the security sold and does not reasonably believe that the security will be in the possession or control of the broker-dealer prior to settlement, the sale should be marked "short." The sale could be marked "short exempt" if the seller is entitled to rely on an exception from the tick test of Rule 10a-1, or the price test of an exchange or national securities association.36 Short sales of pilot securities effected during any pilot period should be marked "short exempt."
The new marking requirements will eliminate the prior discrepancy between how Rule 3b-3 defined a short sale and the marking provisions previously found in Rule 10a-1. In addition, the new marking requirements should facilitate the surveillance and monitoring of compliance with Rule 10a-1. The change to the marking requirements will provide information that shows when exceptions from Rule 10a-1 are used.

In the end such trash sites that offer this information up as some form of DD for developing a trade strategy have not helped their users on the OTC. As the data is of no use from such shareholders or traders, the data cannot lead to a determination as to what is exactly happening to the security in question. Other variables such as dilution are consistently undermining the data provided and therefore make the data unreliable, without real time share structure data you are shooting into the dark as to exact causes of marking. Under normal market making requirements all trades are automatically “marked” regardless of having the shares to meet the trade. This default results in completely obfuscation of what is really happening within the initial trade transaction. One cannot determine that the trade was initiated without shares being available or the locate was clearly the best Ask as all trades will be marked short as part of a risk exposure policy implemented by all market participants.

One should also study FINRAs Riskless Principles Trade Reporting, this Notice outlines quite clearly some of the trade transactions and how they should be marked. Risk Exposure is reduced by using these types of policies to ensure participants are not exposing themselves to poor information as to the origination of the trade transaction.

http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p003972.pdf

SEC Rule 200:
http://www.sec.gov/rules/final/34-50103.htm#III

[AlanC]

I actually believe it is much higher than those figures reflect. One trick they use is wash trading to lower the short percentages but there are others they use as well. Go CCTC!!!