NYSE, Nasdaq short interest falls as bears buy

New York: Short interest fell on the Nasdaq and New York Stock Exchange in mid-October, reflecting a desire by short sellers to buy back stock and lock in profits.

Short interest fell 10.5 per cent on the Nasdaq from late September to mid-October, and on the New York Stock Exchange dropped 8.3 per cent during that period, the second bi-monthly period in a row to see such declines.

"The stock market has fallen significantly and now short traders are beginning to buy shares at a record pace," said Dylan Wetherhill, president and founder of short interest tracking website ShortSqueeze.com.

"Many short sellers seem to think we are near a tradable bottom in the stock market now and have begun buying as fast as they can, and they are now buying when many are selling."

Investors who sell securities "short" profit from betting that stocks will fall. Short-sellers borrow shares and then sell them, waiting for the price to fall so they can buy them back for less, return them to the lender and pocket the difference. Some of the largest declines in short interest came from financial stocks. Shorting of shares in Wachovia Corp fell more than 54 per cent and there was a 58 per cent drop in short interest for National City Corp. On the Nasdaq, short interest in E*Trade Financial Corp fell 12 per cent.

Short interest fell sharply last month as well, partially due to the short-selling ban on financial stocks. That ban was lifted on October 9, but the data for this month showed short sellers continued to buy back shares.

Big investors

An emergency US Securities and Exchange Commission rule that requires big investors to disclose their short positions to the SEC was still in effect during the period, and will continue through August 1, 2009. On the NYSE short interest fell to 13.61 billion shares as of October 15, down from 14.84 billion shares as of September 30. In the same period on the Nasdaq short interest fell to 8.11 billion shares, down from 9.06 billion shares.