Happy to email you one. But a short can be closed (or recalled) by the lender at any point right? So what is the point of paying anyone a locate fee when at risk of handing shares back the next day?
You are confusing a locate with a borrow. Reg-SHO requires any stock not on the ETB list will require a locate to enter a short order. If you do not hold this overnight, there is no borrow. If you hold any hard to borrow stock overnight and your clearing broker can't borrow that stock, you are subject to a buy-in. Day Traders only care about the locate.
1, yes and it is of course subjective and there may be some algos running to determine priority of the search. For example, if you are someone putting out lots of offers on hard to borrows, we locate and then you never trader, that would be akin to crying wolf. 2, yes in all cases, even against the street as a counter-party won't know you or accept your credit. What you mean, does IB lend in house/client shares. Yes we do. If you sign up for SYEP you grant us the right to lend out your shares (and if we do, we split the income) and those on margin allow us to rehypothecate a certain amount (140% of the loan in the US) of client collateral. Naturally we look in house first but we also have relationships with pretty much every major lender given our size. I wouldn't call this betting against the house no more than say taking a margin loan would be and external loans obviously are against collateral.
Although in practice with almost all US equities, you cannot get anything higher than 3.5:1. If you trade pharma stocks (not microcaps but over 2bln cap), expect 1:1 (no leverage) even if daytrading with stops.
I've seen much higher but yes the amount of leverage will be dependent on the underlying stocks. In your example, I think our client base (other than those who want extreme leverage in pharma) would be happy we are not over-extending ourselves and have prudent risk management practices in place.