Easy-to-Borrow
Easy-to-borrow (ETB) refers to securities that are readily available to borrow from prime brokers or securities lenders for the purpose of covering short sales, typically because the security is widely held by institutional investors, has high market capitalization, and the borrow supply substantially exceeds short-selling demand. ETB securities are available at minimal borrowing costs (often near the risk-free rate).
Key takeaways
- Easy-to-borrow securities carry low borrowing fees (often 0.10–0.50% annualized), while hard-to-borrow (HTB) securities can cost 10–100%+ annualized to borrow.
- Prime brokers maintain ETB lists updated daily (or more frequently), designating securities available for borrowing without pre-approval requirements.
- A security's borrow availability can shift from ETB to HTB rapidly when short interest increases, float decreases (e.g., buybacks), or large holders recall shares.
- Short squeeze dynamics are closely linked to borrow availability: as a stock becomes harder to borrow, some short sellers are forced to cover, driving prices higher.
- The borrow cost is a significant component of the total cost of maintaining a short position and must be factored into short-selling return calculations.
Explanation
The mechanics of short selling require that a seller first borrow the securities they intend to sell short, creating a securities lending market that determines the availability and cost of maintaining short positions. The 'easy-to-borrow' designation reflects the favorable end of the securities lending market where supply of lendable shares comfortably exceeds demand.
The economics of securities lending involve multiple parties. Long-only institutional investors (mutual funds, pension funds, ETFs) are the primary suppliers of lendable securities, earning incremental income by lending their holdings through custodians or lending agents. Short sellers (primarily hedge funds) are the borrowers, paying a lending fee in exchange for the ability to sell the borrowed securities. Prime brokers intermediate this market, maintaining inventory of lendable securities across their client base and quoting borrow rates to short-selling clients.
The 'fee rate' for borrowing securities—also called the cost-to-borrow or stock borrow fee—is typically expressed as an annualized percentage of the market value of borrowed shares. For large-cap, widely held stocks like Apple, Microsoft, or ExxonMobil, fee rates are near zero (0.10–0.30% per annum), barely above the prime broker's administrative cost. These securities have deep supply (billions of dollars lendable) and moderate demand, keeping the market competitive and rates minimal.
As short interest in a security increases relative to available supply, the security migrates from the ETB list toward 'general collateral' rates, and eventually to 'hard-to-borrow' (HTB) or 'special' status where borrowing commands premium rates. For high-demand short targets—meme stocks, heavily shorted small caps, companies subject to significant bearish thesis development—borrow rates can surge to 50–200% annualized, dramatically changing the economics of maintaining a short position. A short position costing 100% annualized to borrow requires a 100% price decline to break even—essentially requiring the stock to go to zero just to cover the carry cost.
For hedge funds managing significant short books, borrow management is an operationally intensive function. Prime brokers provide daily borrow availability reports, and fund operations teams must confirm that borrow exists before initiating short positions, monitor ongoing borrow availability for existing positions, and plan for potential 'recalls' where the lender demands the securities back (typically with 3 business days notice). Forced recalls when borrow supply shrinks can compel short sellers to cover positions at inopportune times, contributing to short squeeze dynamics.
Formula
Annual Borrow Cost = Borrow Rate × Market Value of Short Position
Example
A long/short equity hedge fund wants to short 500,000 shares of a large-cap pharmaceutical company currently trading at $80 per share. The prime broker's ETB list shows the stock available at a 0.25% annualized borrow rate. The fund initiates the short. Over six months, as other funds develop similar bearish theses and short interest grows from 3% to 12% of the float, the borrow rate increases to 4.5% annualized. The additional borrow cost on the $40 million short position (500K shares × $80) is (4.5% – 0.25%) × $40M / 2 = $850,000 in additional carry costs over the six months, not including the impact of the stock's price change. This escalating borrow cost reduces the short position's profitability and must be incorporated into the fund's position size optimization and return expectations.
Related terms
Agency Execution Arrival Price Algorithm Borrow Cost Cap Cover Equity Exchange Float Hard To Borrow Hedge Fund Market Capitalization Market On Close Order