Which brokers pay interest on proceeds of shorted stocks?

Discussion in 'Retail Brokers' started by Maverick2608, Feb 8, 2018.

  1. Which brokers pay interest on proceeds of shorted stocks?
  2. IB does. But it's really pretty minimal. There is some risk there that someone blows out there account on a short and you just get the cash collateral and lose out on the bear-blowout move. I've tried to figure out what the risk is here (implicitly, of course it's the net interest rate on it), but haven't been able to find a clear answer. The fact you're getting less than half of the SLB rate on it means that all things being equal, you're probably getting the short end of the stick doing this.

    There's a paradox here, the shares you'd be comfortable loaning out are those that everyone else is, and you're not getting any interest. The ones that generate interest are those that are at highest risk of blowing out shorts, and those most likely to have massive gains (which you'd leave on the table if your shares weren't returned).

    I'm unclear on who is in line to hold the bag on this. Common sense says that the short party is first, their broker second, the you if you take interest. If your broker is keeping all the interest, than they'd be third in line. But I have no specific knowledge of this and haven't been able to find someone who knows better. But here's hoping someone in this thread will!
  3. u say minimal.

    i dont use it but they claim 50% of the rate

    thats not minimal
  4. It is if you consider that 100% of the rate is the implicit cost of the risk of lending.
  5. ET180


    I should know this, but isn't there a cost to shorting a non-hard-to-borrow stock? (I know that there is a cost to shorting hard-to-borrow stocks.) Someone has to loan the stock and since they own it, it is a finance cost to them...don't they get paid for that?
  6. elt894


    I think the original question is about interest on the cash balance you receive when you short a stock, not the rebate you receive when a stock you own is lent out. If so, IB pays a small amount, but it currently only outweighs the borrow fee if you're over $1M short: https://www.interactivebrokers.com/en/index.php?f=interest&p=secfinancing

    For lending shares, my understanding is that IB is the counterparty. Unless they go under, I think you'll get the shares back even if the person they turn around and lend to can't return them. https://www.interactivebrokers.com/...pleView?file=SecuritiesLendingDisclosure.html
    luisHK and Maverick2608 like this.
  7. If you are looking to establish short delta exposure in particular names you should consider selling SSF instead. In this way you are selling a derivative with an interest component already priced in.
    For Hard to Borrow names you can use our STARS transactions to Transfer your current long position to another party and simultaneously in an integrated transaction replace it with a Delta 1 synthetic position priced at a discount...which represents the lending fee which you don't have to split with anyone but you will have to pay brokerage.
    Please note that this has implications for tax purposes and you should seek counsel from a tax expert but if you take mark-to-market tax treatment now this is a no-brainer.
    ajacobson likes this.
  8. was referring to sharing of the loan fee. thought that was the original question
  9. zdreg


    I assume this is a useful service at an institutional level. however I suspect for a retail trader with a short term horizon.there are too many hoops to jump through. what minimum position size position or dollar value position are we talking about.
  10. Gaining access will be the lift as the product competes with the financing processes (margin lending, Delta 1, Sec Lending and Equity Repo) at the brokerages. Customers either come through the FCM side of the world or through IBKR. Our STARS (Securities Transfer and Return Spreads) were designed to replicate the economics of Sec Lending and REPO. They are simply spreads that use that day's expiring future as the front leg which acts as the Transfer mechanism (Security for cash) on T+1. Return of the Security is guaranteed through the long dated contract being against the AA+ guarantees of OCC and NSCC.

    1 lot would be the minimum required.
    #10     Feb 8, 2018