Broker with most available shares to short?

[zdreg]

Since it costs IB little more to provide this service than any of their other brokerage services, the answer is that it should cost something similar to all their other products, i.e. they make a commission of less than 1%. Taking 50% is crazy, something they can do only because as you pointed out they're the only ones really doing it at the moment. The minute they get any competition that drops to a fraction of what it is now. In 1976 it would have been common for someone in the industry like you to ask, when a customer complained about stock trading commissions, "If you feel $100/trade in commission for a 1 lot retail trade is unreasonable, what is the right number for providing this service?" The answer, it turns out, is $1, or in 1976 dollars, $0.25.

it is not crazy to take 50% as you say. it is what competition and corporate strategy is all about. there is no reason that every service a company offers should have the same markup.

as to your commission example there is right number for a given moment in time, . what was right just after negotiated commissions were introduced in 5/75 is a lot different than for market conditions in 2015 and for years in between. there was no hft in 1975 and very little day trading.
change did not happen overnight. commissions changed but it took outliers like IB to maximize the change. the traditional securities industry is constantly fighting to bring back the so called good days for the industry, restoration of the uptick rule and required wider spreads e.g. .05+ versus the current .01.

 

[Sig]

it is not crazy to take 50% as you say. it is what competition and corporate strategy is all about. there is no reason that every service a company offers should have the same markup.

as to your commission example there is right number for a given moment in time, . what was right just after negotiated commissions were introduced in 5/75 is a lot different than for market conditions in 2015 and for years in between. there was no hft in 1975 and very little day trading.
change did not happen overnight. commissions changed but it took outliers like IB to maximize the change. the traditional securities industry is constantly fighting to bring back the so called good days for the industry, restoration of the uptick rule and required wider spreads e.g. .05+ versus the current .01.

I'll paraphrase then, in today's hypercompetitive broker market it is crazy to charge 50%. There are two parts to pricing, what it costs to provide the service and what the market will bear. In competitive industries providing a commodity, those two converge to something slightly higher than the cost to provide the service. I would submit that the brokerage market it competitive and lending shares to short is a commodity activity since nearly every broker does it. Therefore the price will shortly converge on a slight markup to cost, which is sub 1%. Until then good on IB for following the optimum pricing strategy and milking every dollar they can out of it, in fact why stop at 50%, why not make the split 90/10 in their favor since they have pricing power for the moment. But make no mistake, this isn't a 50% margin product long term.

 

[zdreg]

I'll paraphrase then, in today's hypercompetitive broker market it is crazy to charge 50%. There are two parts to pricing, what it costs to provide the service and what the market will bear. In competitive industries providing a commodity, those two converge to something slightly higher than the cost to provide the service. I would submit that the brokerage market it competitive and lending shares to short is a commodity activity since nearly every broker does it. Therefore the price will shortly converge on a slight markup to cost, which is sub 1%. Until then good on IB for following the optimum pricing strategy and milking every dollar they can out of it, in fact why stop at 50%, why not make the split 90/10 in their favor since they have pricing power for the moment. But make no mistake, this isn't a 50% margin product long term.

if the industry is hyper-competitive explain the differential IB charges 2% vs. 8% margin rate on small loan amounts and and also wide differences on larger amounts? this situation has existed for years. why have these differences not been competed away?

 

[Sig]

if the industry is hyper-competitive explain the differential IB charges 2% vs. 8% margin rate on small loan amounts and and also wide differences on larger amounts? this situation has existed for years. why have these differences not been competed away?

I think you're coflating two different things, intra-firm versus inter-firm. IB probably charges more on small loan amounts because it costs more to service them and the small margin loan space isn't as competitive as the large margin loan space. But it could be that they just don't have competitive rates in that part of their offering, but others do. It could be that they think they can attract you with the wider variety of products and things like an API and make it up for that with slightly higher margin rates for small accounts. Other brokers might charge a lower margin rate to attract you, but not have some services IB has. Regardless we're talking single digit percentages here, not 50% which is unheard of in any other part of the brokerage industry.
I don't disagree that brokers hate margin erosion and will do things like push wider mandatory spread increments that no individual broker can "cheat" on to gain market share. That said, it is overall a very competitive industry by the metrics strategy types use; I'd certainly never enter it based on a five forces analysis. The "If 50% of the revenues is not what you feel they should take, what is the right number for providing this service?" question rubbed the wrong way a bit. As if we were being impertinent to even question a 50% rate, and somehow a broker is entitled to that kind of outlandish commission for some great service they are providing, when in fact they're already providing the shorting service as part of their business.

 

[zdreg]

I think you're coflating two different things, intra-firm versus inter-firm. IB probably charges more on small loan amounts because it costs more to service them and the small margin loan space isn't as competitive as the large margin loan space. But it could be that they just don't have competitive rates in that part of their offering, but others do. It could be that they think they can attract you with the wider variety of products and things like an API and make it up for that with slightly higher margin rates for small accounts. Other brokers might charge a lower margin rate to attract you, but not have some services IB has. Regardless we're talking single digit percentages here, not 50% which is unheard of in any other part of the brokerage industry.
I don't disagree that brokers hate margin erosion and will do things like push wider mandatory spread increments that no individual broker can "cheat" on to gain market share. That said, it is overall a very competitive industry by the metrics strategy types use; I'd certainly never enter it based on a five forces analysis. The "If 50% of the revenues is not what you feel they should take, what is the right number for providing this service?" question rubbed the wrong way a bit. As if we were being impertinent to even question a 50% rate, and somehow a broker is entitled to that kind of outlandish commission for some great service they are providing, when in fact they're already providing the shorting service as part of their business.

"Other brokers might charge a lower margin rate to attract you,"

reread my post. . it said IB charges less then everybody else at all amounts. it is 2% vs. 8% for other brokers on small amounts.

there are brokers who charge 8% on a riskless transaction. the reality isthe small person nearly always pays more or doesn't receive certain services.