When an account holder sells shares short, IBKR borrows equivalent shares on behalf of the account holder in order to satisfy their obligation to deliver shares to the purchaser. The stock loan agreement through which these shares are borrowed requires that IBKR provide the lender of the shares with cash collateral for the loan. The amount of cash collateral is based on an industry standard calculation of the value of the shares called the Collateral Mark.

The lender of the shares provides interest to IBKR on the cash collateral and also charges a fee for providing this service by adjusting the interest paid to an amount less than the prevailing market interest rate for cash collateral deposits (typically the rate is pegged to the Fed Funds Effective rate for USD denominated cash deposits). For hard to borrow shares, the lender’s fee for providing the shares may result in a net negative interest rate charged to IBKR.

While many brokers pass a portion of this rebate only to institutional clients, all IBKR clients receive an interest credit on short stock sales proceeds that exceed USD 100,000 or the equivalent in another currency. When the supply of a given security available to borrow is high relative to its borrow demand, account holders can expect to receive an interest credit on their short stock balance equal to the Benchmark Rate (e.g., Fed Funds Effective overnight rate for USD denominated balances), less a spread (currently ranging from 1.25% on balances of USD 100,000 to 0.25% for balances over USD 3,000,000). The rates are subject to change without notice.

When the supply and demand attributes of a particular security are such that it becomes hard to borrow, the rebate provided by the lender will decline and may even result in a charge to the account. The rebate or charge will be passed on to the account holder in the form of a higher borrow fee, which may exceed short sale proceeds interest credits and result in a net charge to the account. As rates vary by both security and date, IBKR recommends that customers utilize the Short Stock Availability tool accessible via the Support section in Client Portal/Account Management to view indicative rates for short sales. Note that the indicative rates reflected in these tools are intended to correspond to the short sale proceeds interest IBKR pays on Tier III balances, that is, additional short sale proceeds of USD 3 million or greater. For lower balances, the rate is adjusted based upon the tier and the Benchmark Rate associated with the trading currency. The exact rate can be viewed by using the Interest Paid to You on Short Sale Proceeds Cash Balances calculator.