DEFINITION of 'Member Short-Sales Ratio'

The member short-sales ratios is the portion of short sales in the period under review that are transacted by members of the New York Stock Exchange (NYSE) compared to the total amount of short sales done on the exchange in that period. A short sale occurs when an investor sells a security that they have borrowed, rather than one that they own, in anticipation of a price decline for the security. The investor must deliver the security to the buyer at some point in the future at a predefined price, and if the price decline happens, he or she can purchase the security cheaper than the predefined price and deliver it for a profit. The New York Stock Exchange is considered the largest equity-based stock exchange in the world. A stock exchange is a physical or virtual place in which buyers and sellers of securities, such as stocks or bonds, come together to buy or sell their assets.

BREAKING DOWN 'Member Short-Sales Ratio'

The calculation for the member short-sales ratio is as follows:

Member short-sales ratio = Total Short Sales on the NYSE - Non-member Transacted Short Sales

                                                                    Total Short Sales on the NYSE

The result of this calculation shows the percentage of short sales that were transacted by members of the New York Stock Exchange.

To become a member of the New York Stock Exchange, applicants must complete the membership process. To qualify, applicants must be registered U.S.-based broker-dealers who are deemed a Self Regulatory Organization and have an established affiliation with a clearing firm. A broker-dealer is a licensed, registered buyer or seller of securities, and a self regulatory organization is a non-governmental, private group that in effect policies itself in the eyes of the Securities and Exchange Commission. Because of the host of requirements, members of the NYSE are regarded as professional investors.

The member short-sales ratio is referred to in order to gauge and analyze the sentiment of market professionals. By isolating the number of short sales transacted by "pros," investors can remove the unwanted noise of public traders, who may be less informed. Therefore, the ratio is often seen as an indicator of bullish or bearish trends. When these professional investors decide to sell securities short en masse, it may be taken as a sign that the experts believe a downturn in prices is imminent. By contrast, if only a small percentage of professional investors are selling securities short, it may be seen as a sign that the experts believe prices will rise. Generally, a ratio above 85% is seen as a bearish signal, while a value of less than 65% is seen as a bullish signal.

  1. Short-Sale Rule

    The short-sale rule was a Securities and Exchange Commission ...
  2. Specialist Short Sale Ratio

    The specialist short sell ratio compares the short positions ...
  3. Short Interest

    Short interest, an indicator of market sentiment, is the amount ...
  4. Buy To Cover

    Buy to cover is a trade intended to close out an existing short ...
  5. Allied Member

    An allied member is a person who is not a member of the New York ...
  6. Days To Cover

    Days to cover is a measure of a company's issued shares that ...
Related Articles
  1. Trading

    Short interest: What it tells us

    Whether you agree with the overall sentiment or not, short interest is a data point worth adding to you overall analysis of a stock.
  2. Investing

    What Is A Short-Sale Property & How Does It Work?

    A short sale is an alternative to foreclosure whereby indebted owners get permission from a bank to sell their house for less than amount of the mortgage.
  3. Investing

    Why Short Sales Are Not For Sissies

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  4. Investing

    Short Selling Risk Can Be Similar To Buying Long

    If more people understood short selling, it would invoke less fear, which could lead to a more balanced market.
  5. Investing

    Rules and Strategies For Profitable Short Selling

    Short sales work well in bull and bear markets but strict entry and risk management rules are required to overcome the threat of short squeezes.
  6. Insights

    The NYSE and Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
  7. Trading

    Know When To Hold, Know When To Fold A Short Sale

    Consider making a short sale in the following circumstances: Bearish trend is developing rapidly, fundamentals are deteriorating, technical indicators are signaling "Sell," and there is an abrupt ...
  8. Investing

    Best Performing Short Stocks of 2018 YTD

    Based on short interest, Snap, Tesla, AT&T take the top 3 spots for best returns to short sellers.
  1. What Happens When Borrowed Short Shares Are Sold?

    In a short-sale transaction, shares are borrowed from the lender and sold in the market. Read Answer >>
  2. What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission (SEC), including ... Read Answer >>
  3. Here's What Short Sellers Must Do to Short a Stock

    Learn what benefits a short seller is required to make up to the lender of shares, or long investor, when shorting a stock ... Read Answer >>
  4. Can you short sell stocks that are trading below $5? My broker says that I can't.

    Although it is not a requirement set by FINRA or the SEC, brokers will often tell investors that only stocks above $5 can ... Read Answer >>
Trading Center