Short Selling

On the TWS platform, it is easy to see which shares can be sold short and where this is not possible. This information can be found in a special column, which can be viewed as follows:

Once you opened the TWS platform, click Edit at the top left corner and than Global Configuration. Now there opens new window, click Trading Tools and than Quote monitor, and next Default layout. On the right-hand side of the column, select Market Data Columns. In the next Available Columns find Short Selling and than select Shortable Shares. Click Add and and confirm the changes by clicking OK at the bottom of the window.

On the TWS platform you can check conditions for opening a short position. In the column Shortable Action you can find the various types of colour:

Once you opened the TWS platform, click Edit at the top left corner and than Global Configuration. Now there opens new window, click Trading Tools and than Quote monitor, and next Default layout. On the right-hand side of the column, select Market Data Columns. In the next Available Columns select Fee rates. Click Add and and confirm the changes by clicking OK at the bottom of the window. The column will appear on the platform with the current interest rates.

Attention: Remember that these are updated daily. Typically, these rates vary between 1 and 2 % per annum, but there are also cases where costs reach hundreds of % per annum! Therefore, if you have an open short position, we recommend that you regularly monitor changes in the cost of financing borrowed shares to avoid unexpected problems.

The reason for this is because the stock could no longer be borrowed. There isn’t always liquidity availability for us to keep borrowing the stock, particularly for stocks where there is a lot of demand.

In the context of short selling, dividend payouts and other corporate actions can have specific implications for both the short seller and the borrower of the shares. Let’s explore what happens in these scenarios:

Dividend payout:

If you are a short seller, you have borrowed and sold shares that you don’t actually own. Because of this, you are obligated to replace the borrowed shares at some point.

When a company issues a dividend, the value of the dividend is deducted from the company’s stock price. This means that if you short the stock, you will owe the dividend to the lender of the shares.
To settle this, you’ll need to reimburse the lender of the shares for the dividend amount out of your own pocket.

Essentially, short sellers end up paying the dividend to the shareholders from whom they borrowed the shares.

Other corporate actions (e.g., Stock Splits, Mergers, Spin-offs):
Similar to dividends, other corporate actions can affect the stock’s value and the short seller’s position.
In the case of a stock split, for instance, if you are short a stock that undergoes a split, the number of shares you owe to the lender increases, and you might need to provide more shares to cover your position.

Before engaging in short selling, traders and investors should thoroughly understand the terms and risks associated with borrowing shares and be prepared for potential adjustments based on corporate actions.

Once the activity statement has been generated in the Client Portal, you can check it under Interest.

For accounts held with IBIE, risk-based margin applies. This margin system evaluates your portfolio’s risk to determine margin requirements, allowing for greater leverage through more accurate risk assessments. Margin requirements are determined using a “risk-based” pricing model that calculates the largest potential loss of all positions in a product class or group across a range of underlying prices and volatilities.

Because of the complexity of Portfolio Margin calculations it would be extremely difficult to calculate margin requirements manually. We encourage those interested in Portfolio Margin to use their Paper Trading account to understand the impact of Portfolio Margin requirement under different scenarios.

Source: Stock Margin Requirements | Interactive Brokers Ireland

Accounts held with IBUK has to comply with regulation T, which sets margin requirements as following:

Under Regulation T, short sales require a deposit equal to 150% of the value of the position at the time the short sale is executed. This 150% includes the full value of the short (100%), plus an additional margin requirement of 50% or half the value of the position.

Source: Short Selling and Margin

If you are unsure where your account is held, you can consult the Legal Notes section of an Activity Statement or contact your local Service Desk.

In determining the cash deposit required to collateralize a stock borrow position, the general industry convention is for the lender to require a deposit equal to 102% of the prior business day’s settlement price, rounded up to the nearest whole dollar and then multiplied by the number of shares borrowed. As borrow rates are determined based upon the value of the loan collateral, this convention impacts the cost of maintaining the short position, with the impact being most significant in the case of low-priced and hard-to-borrow shares. Note, for shares not denominated in USD the calculation will differ. Find below a table summarizing the calculations per currency:

For US Treasuries and corporate bonds, the collateral amount on which the borrow fee is charged will include the accrued interest.

Account holders may view this adjusted price for a given transaction in the “Borrow Fee Details” section of the daily account statement.

Source : Why does the “price” on hard to borrow stocks not agree to the closing price of the stock?