When you say higher levels, I would imagine you mean market makers. B) Would you say, that stocks which are truly HTB and "inherently" have a high carry cost is another way of saying "the market maker merits exclusive rights to short this stock" and "BEWARE" to the retail trader?
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Hard-to-borrow stocks: What is really going on?
- Thread starter Option Trader
- Start date
Quote from Option Trader:
When you say higher levels, I would imagine you mean market makers. B) Would you say, that stocks which are truly HTB and "inherently" have a high carry cost is another way of saying "the market maker merits exclusive rights to short this stock" and "BEWARE" to the retail trader?
I think the reasoning for the high carry costs is probably two-fold. The main reason is just an excuse to charge an abnormally ridiculous rate, by saying it's hard to borrow. But really is there any justification for charging rates of 50-80%? We're not in a credit crunch anymore. Someone is making a bundle somewhere, and i'm sure it's not the institution lending the stock.
Secondly, it may be in the clearing firms better interest to keep the real thin securities to their own internal market makers. So a high rate does deter traders from stepping onto their turf.
I agree. The high borrow rate is to take advantage of what the trader will bear.Quote from tripledtrader:
I think the reasoning for the high carry costs is probably two-fold. The main reason is just an excuse to charge an abnormally ridiculous rate, by saying it's hard to borrow. But really is there any justification for charging rates of 50-80%? We're not in a credit crunch anymore. Someone is making a bundle somewhere, and i'm sure it's not the institution lending the stock.
My guess is that both brokers get a piece of the pie.
How about this new definition of "HTB"? 1) "Stocks which the market maker(s) is strongly pessimistic on,, and through his agents, arranges for himself a monopoly of the right to short the stock." OR 2) "Stocks which, if you buy in bulk, you can almost rest assured your counterparty to the trade is the market maker, who all else equal, when he has a proper excuse, manipulate the stock price back to far below the price he sold the stocks for."Quote from tripledtrader:
I think the reasoning for the high carry costs is probably two-fold. The main reason is just an excuse to charge an abnormally ridiculous rate, by saying it's hard to borrow. But really is there any justification for charging rates of 50-80%? We're not in a credit crunch anymore. Someone is making a bundle somewhere, and i'm sure it's not the institution lending the stock.
Secondly, it may be in the clearing firms better interest to keep the real thin securities to their own internal market makers. So a high rate does deter traders from stepping onto their turf.
Unless a retail trader has inside information, who would short a htb stock? If so, who are the stock bashers?Quote from tripledtrader:
...Secondly, it may be in the clearing firms better interest to keep the real thin securities to their own internal market makers. So a high rate does deter traders from stepping onto their turf.