Hard-to-borrow stocks: What is really going on?

Discussion in 'Trading' started by Option Trader, Feb 11, 2010.

  1. 1. Can it be hard-to-borrow with one clearance firrm, and easy-to-borrow with another clearance firm?

    2. Is the carry cost of maybe 40% to 100% for retail traders only? Also institutional traders? Are market makers exempted from the carry cost?

    3. Assuming there are traders who can short a htb stock without a carry cost, is it safe to assume it becomes hard-to-borrow when market makers take a big position betting against the stock (and acting as your and my counterparty)?

    3b. Someone suggested everything below $3 is automatically called hard-to-borrow; is there any basis for this?

    4. Does a market maker every have to cover upon a shortage of the stock?
  2. I've gone through a whole list of stocks of below $3 and have found that they are all hard to borrow, at least as designated by a Penson broker.

    Also noticed isolated ones (e.g. DRL) above $3 are htb.
  3. Get a good broker.
  4. Sorry, I should also add, Penson, the clearance firm, themselves, say that is their policy regarding stocks below $3.

    However, I am not sure if that is only with Penson...
  5. Each clearing firm has their own list of shortable stocks. So this will differ from broker to broker depending on the clearing firm.
    There's no rule of under $3 being hard to borrow.

    GS has lots of shortable stocks under $3 that are not hard to borrow, FNM for example.

    The carrying costs are ridiculous. They went way up in 2008 during the credit crunch, and the clearing firms have still not brought these costs down on a lot of thinner issues. It's a huge money grab.
  6. Does everyone pay these carrying costs?
  7. gaj


    that's been penson's operating procedure for years. used to be $5.
  8. I'm a prop trader with Bright, and we pay these fees.
    There's probably some exemptions at higher levels, but this information would be very hard to obtain, as it's not publicy disclosed. This is another shady area of our two-tiered market structure.
  9. I trade with Hold Brothers.

    1. Can it be hard-to-borrow with one clearance firrm, and easy-to-borrow with another clearance firm?

    Almost all actively traded(whatever the price) stocks are ETB. Rare ones which are not: http://locatestock.com/
  10. A) So you're saying if Penson calls all stocks below $3 as HTB, and charge a fortune for carry fees, the fortune goes to Penson? B) What about in a situation like CTIC which even IB charges about 70%, who gets makes the money?
    #10     Feb 11, 2010