I can't comment on your situation, but I can tell you how it works with institutional or institutional-size accounts. We are paid interest on short positions. It doesn't make any difference what the firm's official policy is or anything else: if it's clear they're not going to get the business, they pay interest.
I'm told it doesn't make any difference the size of the account; what counts is the aggregate size of the short positions. I've been told that 500-700,000 is the magic number. Beneath that evidently no one wants to discuss paying interest (although I have heard periodically of small brokerage firms paying retail customers interest).
I try to pre-negotiate the interest rate that's paid, tying it to a percentage of the Fed Funds rate. This works as a basic guideline, but what really counts is what the brokerage firm has to pay to borrow the stock. They'll scream and complain about any interest, but the screaming sounds a lot more like Drew Barrymore when they're actually losing money. In that case, no matter what deal I've got on paper, we re-adjust it so they're making money.
It may be rare, as someone here suggested, that the cost of borrowing a stock exceeds market interest rate, if what you mean by "rare" is a small percentage of the 10,000 stocks out there. It's not rare if you're discussing the kind of stocks that I like and you like. I have had the experience of thinking I was all alone in a big short position only to find that there were loads of other people doing exactly the same thing; when that happens, the houses that have the stock to borrow can charge what they want. By and large, if your broker is having difficulty getting the shares you want, you're not going to get much interest on the stuff he borrows.
Also, my brokers would not dare adjust the brokerage commissions without telling me first. That doesn't mean they never screw me; it just means that they always tell me they're screwing me before they do it. I am typically given an opportunity to complain, the broker listens to the complaint attentively, and then he goes ahead and does what he was going to do anyway. |
