Borrow Fee

The borrow fee is what the lender charges for making its shares available. It is quoted as an annual percentage of the loan's market value and accrues daily, so it is recalculated as the share price moves — a short that goes against the seller costs more to carry as well as showing a loss. The fee is paid whether the thesis works or not, and it stops only when the shares are returned.

Pricing is set stock by stock in a negotiated market, not by any published rate. The determinants are lendable supply and borrower demand: how much stock the institutions on the register are willing to lend, and how much of it has already been taken. General collateral names — large, widely held, lightly shorted — cost very little. As utilisation of the lendable pool rises, the remaining supply is priced progressively higher.

Fees move fast, and they can be repriced on an existing loan. A stock that was cheap to short when a position was opened can become expensive within days if a thesis becomes crowded or a large lender withdraws. That variability is a real risk for sellers holding a position for months, because the carry assumed at entry may bear no relation to the carry actually paid.

On the ASX the fee is only part of the cost. Dividends paid during the loan must be manufactured back to the lender, and Australian payout ratios are high by global standards, so a position held through the February or August reporting seasons accrues a substantial extra cost. Together the fee and the manufactured dividends form the total borrowing cost of the position.

Australian borrow fees are not public. They sit with prime brokers, agent lenders and commercial data providers, unlike the aggregated net short positions ASIC publishes with a four trading day delay. From the public data, the observable proxies for an expensive borrow are heavy short interest against shares on issue, a small free float and thin trading volume.