(1) Specialists Specialists contend that during a major upturn in prices they are called on to supply stock in increasing amounts to maintain price continuity and orderly markets; also, that during the later stages of an upturn they may, in fact, have to resort to short sales to supply the increased demand on the part of the public. It is true that near the tops of bull markets, specialists often account for 60 percent or more of all short sales. Also, chart VI-j, which shows the share volume of short sales by specialists on a daily basis from April through June 1962 indicates that specialists effected close to 900,000 shares, or about 73 percent of total short sales (practically all of members' short sales) on May 31, a day of sharply rallying prices, and close to 600,000 shares, a large portion of members' short sales, on July 10, another bouyant day. However, it appears from the testimony of a number of specialists about their attitudes during this period that their heavy short selling was at least partially the result of their bearishness. Indeed, in relation to their own total activity from 1954 to 1962, specialists' short sales tend to shrink on advances and to bulk larger on market declines, showing marked rises during periods of acute price weakness (chart VI-k). 626 (2) Members off the floor Members off the floor, as a group, account for between 10 and 25 percent of total short selling. Because the group represents such a variety of accounts, including firm accounts and partners' personal trading accounts, the group's short selling probably includes every type from the purely technical arbitrage to out-and-out speculation. There are no data, unfortunately, to indicate the amounts of each. In terms of the percentage of their activity which is short selling, members off the floor appear no different from other short sellers. They do most of their short selling on declines, reaching their peaks (almost 25 percent of their total sales) at market lows, and, like most others, tend to decrease their selling as the market advances and to do least at (about 8 percent of their total sales) market peaks (chart VI-k). (3) Floor traders Floor traders represent the smallest member group in number of traders as well as in volume of short sales. Their short selling, which accounts for about 2 to 10 percent of total short sales and ranges predominantly between 5 and 15 percent of their own total sales, is very largely short term with covering generally taking place on the same day, often in a matter of minutes. For this reason, short selling by floor traders requires little borrowing of stock, and their short sales are seldom reflected in the short interest statistics. These aggregate figures, however, obscure the fact that individual floor traders on occasion have taken large short positions in particular stocks. Chart VI-k, on which floor traders' short sales are shown as a percentage of their total sales, indicates that they are like others' short sales but more volatile. 526 See pt. D.6.e (4) of this chapter. (4) Odd-lot dealers A fourth category of members, the odd-lot dealers, have never reported their short sale volume figures, if any, since July 1944, claiming that any short sales they may have made were under the exemption provided by SEC rules.527 However, the reports of their long or short positions in individual stocks, and the New York Stock Exchange's mid-month report on the short interest in exchange stocks,528 reflect short positions of the odd-lot dealer firms in a number of stocks. Short positions may be acquired by odd-lot dealers in two ways other than by a regular short sale: first, by an exempt short sale of a round lot; and second, by failing to offset their odd-lot sales to customers by purchasing stock in the round-lot market. Formerly, it was the practice of the firms to make their offsetting round-lot transactions as profitable as possible by permitting positions in individual stocks to accumulate until, in the judgment of the firm's partners, it was an opportune time to close out the position. In recent years, however, the policy of the two largest firms has apparently been to keep positions at a minimum level. The individual positions appear to be nominal in the sense that the position in a given stock may be short a few shares one month and long the next month, apparently without regard to the trend of the market. For the majority of the stocks in the monthly inventory, relatively small positions are reported, usually amounting to less than a round lot. Reports on month-end positions are limited by their nature, however, and the odd-lot firms do frequently retain, for numbers of days, positions in individual stocks which exceed 1,000 shares.529 Major instances usually are to be noted in situations involving a "when-issued" stock, where a short position may have accumulated simply because the new stock had not yet become available for delivery.530 The total short interest figures for odd-lot dealers, as previously mentioned, are reported separately in the New York Stock Exchange's mid-month report and are shown in chart VI-1. For comparative purposes, the chart shows the total short interest for all accounts, other than odd-lot dealers, and the trend of the market. The chart also appears to reflect the above-mentioned change by the odd-lot dealers to a policy of smaller positions. Prior to 1957, aggregate positions often ran over 100,000 shares and exceeded 200,000 shares in the latter part of 1955, while changes averaged 40,000 per month. Since then, the aggregate positions have averaged well below 100,000 shares. Month-to-month changes also are much smaller, usually less than 20,000 shares. 537 Prior to that date, odd-lot dealers frequently reported short sales. 528 See sec. 1.e(1). 529 See pt. E.3.e of this chapter. 530 Often when such cases involve an identical issue, an equivalent long position in the issued stock is allowed to accumulate, apparently as an offset. |