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Ask Your Broker: Where Is Your Short Interest Rebate? June 14, 2007

Posted by federalist in Finance.
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When you sell a stock short your broker borrows shares, sells them on your behalf, and collects cash in return.  That cash sits somewhere collecting interest.  You should get a cut of it.  But unless you’re a customer of Muriel Siebert or Thinkorswim you won’t see a cent.

Institutions (especially long/short funds) look forward to the “short rebate” of this interest after the broker has covered the costs of borrowing shares.  It can make a market-neutral portfolio nearly costless to finance.  I was surprised to learn how hard it is to earn this rebate as an individual investor.  Following are brokerages that do NOT pay any short rebate:

  • Ameritrade
  • Banc of America
  • ETrade
  • Fidelity
  • Firstrade
  • Interactive Brokers
  • Marsco
  • OptionsXpress
  • Schwab
  • Scottrade
  • Tradeking
  • USAA
  • Vanguard

The best broker in terms of money rates is Siebert: They will pay 1.875% (currently; floats with the Fed Funds rate which is currently 5.25%) on any short credit balance, and will even negotiate higher rates for large balances.  Meanwhile they charge a margin rate of at most only 75bp over the Broker Call rate (currently 7%) and offer a competitive money-market sweep (currently 4.45%).

Thinkorswim, which specializes in options and derivatives, offers a 1.75% rebate on short balances above $100k, with up to 2.25% on balances over $1MM.  They sweep at Fed Funds – 125bp, and margin at 225bp over Fed Funds.

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Comments»

1. federalist - June 27, 2007

Looks like Interactive Brokers also pays short interest on credit balances over $100k.

2. Lawrence Chiu - October 17, 2007

RE: IBKR… They pay 3.56% over $100k and 4.31% over $1million and 4.56% over $3million. Looks like you have to be pretty rich to take advantage.

3. sophie - February 5, 2009

How much does BNP Paribas pay for short share operations?


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