Hard-to-Borrow List: Insights, Examples, and Considerations

A hard-to-borrow list is a dynamic inventory utilized by brokerages, detailing stocks challenging to borrow for short sale transactions. This catalog is pivotal in managing short selling activities, providing real-time information about stocks that aren’t readily available for borrowing.

Short selling relies on traders or investors borrowing shares from brokers to profit from declining stock prices. When a broker has limited shares available, those stocks are categorized on the hard-to-borrow list. This list serves as a warning to account holders that attempting to short sell these stocks might face refusal due to limited availability.

Short supply isn’t the sole reason for a security landing on the hard-to-borrow list. Factors like high volatility can also contribute to a stock’s inclusion on this list. To initiate a short sale, the client must borrow shares from the broker, potentially incurring higher fees and interest for stocks on the hard-to-borrow list due to their limited supply.

Brokerage firms update their hard-to-borrow lists daily, reflecting the dynamic nature of stock availability. To execute a short sale, brokers must ensure they can provide or locate the shares for lending. Regulation SHO, implemented in 2005, enforces a “locate” condition, requiring brokers to reasonably believe they can borrow and deliver the shares for short selling, aiming to prevent naked short selling.

The hard-to-borrow list contrasts with the easy-to-borrow list, which catalogues securities readily available for short sale transactions. Investors can generally assume that securities absent from the hard-to-borrow list are accessible for short selling. While the hard-to-borrow list is often internal, clients usually have access to the easy-to-borrow list. Securities on the hard-to-borrow list may incur higher fees compared to those on the easy-to-borrow list, impacting the cost of short selling.

Brokerage firms update their hard-to-borrow lists daily to reflect the changing availability of stocks for short sale transactions.

Stocks may land on the hard-to-borrow list due to limited availability, high volatility, or other considerations affecting short selling.

While not impossible, short selling stocks on the hard-to-borrow list may come with limitations, potentially leading to refusal or higher fees and interest.