The Threshold List vs. Short Interest: What's the Difference?

Two Sides of the Same Coin?

For traders who are looking to identify potential short squeeze candidates, the Threshold Security List and short interest data are two of the most important data sets to watch. However, it is important to understand that these two data sets are not the same thing. While they are often correlated, they measure different aspects of the short selling landscape.

The Threshold Security List: A Measure of Delivery Failures

The Threshold Security List is a list of securities with a significant number of failures to deliver. As we have already discussed, a security is placed on the list if it has an aggregate fail to deliver position for five consecutive settlement days at a registered clearing agency of 10,000 shares or more, and the level of fails is equal to at least 0.5% of the issuer's total shares outstanding.

The key thing to remember about the Threshold List is that it is a measure of delivery failures, not necessarily a measure of short selling. While naked short selling can be a cause of delivery failures, there can be other reasons as well, such as administrative errors or a lack of liquidity.

Short Interest: A Measure of Short Positions

Short interest is the total number of shares of a security that have been sold short and have not yet been covered. The exchanges and FINRA publish short interest data twice a month. This data provides a snapshot of the total number of short positions in a particular security on a given date.

Unlike the Threshold List, short interest data is a direct measure of short selling. However, it is important to remember that short interest data is only published twice a month, so it can be a lagging indicator.

Using Both Data Sets to Your Advantage

While the Threshold List and short interest data are different, they can be used together to get a more complete picture of the short selling landscape. Here are some of the ways that you can use both data sets to your advantage:

• Confirmation: If a security is on the Threshold List and also has a high short interest, it is a strong indication that there is a significant amount of short selling in the security.
• Divergence: If a security is on the Threshold List but has a low short interest, it could be a sign that the delivery failures are due to something other than naked short selling. This could be an opportunity to take a contrarian position.
• Leading Indicator: The Threshold List can be a leading indicator of a potential increase in short interest. If a security appears on the Threshold List, it is a sign that the security is becoming more difficult to borrow, which could lead to an increase in short interest as more traders are forced to borrow shares to cover their short positions.