What is Securities Lending and Borrowing in Short Selling?

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The "Securities Lending and Borrowing" course is an advanced level program designed for investors interested in short selling stocks, especially using Interactive Brokers' Trader Workstation (TWS). This course provides a comprehensive understanding of the short selling process and offers insights into key features of TWS that support effective short trading strategies.
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Key Course Highlights:

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• Shorting Stocks on TWS: Learn how to efficiently short sell stocks on TWS, including finding share availability and associated fee rates.
• Pre-Borrow US Stocks for Shorting: Understand the mechanics of pre-borrowing stocks for short sales, and how Interactive Brokers facilitates this process.
• Stock Yield Enhancement Program (SYEP): Explore how to earn additional income by lending fully-paid shares to Interactive Brokers for on-lending to short sellers.
• Mechanics of a Short Sale: Detailed breakdown of the steps involved in a short sale, both from the investor's and the broker’s perspective.
• Short Selling and Margin: Gain insights into the role of Regulation T of the Federal Reserve Board and its implications for margin in short selling.
• Securities Lending Analytics from Orbisa: Learn to analyze short-selling trends using market data, including current and historical borrowing metrics and stock borrow difficulty.
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By completing the "Securities Lending and Borrowing" course, participants will acquire advanced knowledge and practical skills necessary for short selling stocks. The course emphasizes understanding the intricacies of short selling, including regulatory aspects, financial mechanics, and tools available in TWS to make informed short selling decisions. It's an essential educational resource for investors aiming to leverage short selling as part of their investment strategy in the stock market.

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FAQ

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1) How do I check if a stock is shortable in TWS and what drives the borrow fee?

In TWS you can see if shares are available to short and what the borrowing fee is before placing an order. The fee depends on supply and demand—stocks that are harder to borrow usually cost more, and the rate can change during the day.

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2) When should I use a pre-borrow instead of a standard short sale?

A pre-borrow means you lock in the shares before you short them. This helps avoid problems in stocks that are very hard to borrow or in special situations. The trade-off is it can cost more since you pay the fee from the moment you borrow.

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3) How do margin rules affect short positions?

Short proceeds are held as collateral. Initial and maintenance margin depend on the security’s risk; requirements can rise during volatility. Falling equity or higher fees can trigger margin calls and forced buy-ins.

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4) What is the Stock Yield Enhancement Program (SYEP) and what are the trade-offs?

This program lets the broker lend out your fully paid shares. You earn part of the income, but while the shares are lent, you temporarily give up voting rights and dividends may be paid in a different form (which can affect taxes). The shares can be recalled anytime.

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