A hard-to-borrow fee is an annualized fee based on the value of a short position and the hard-to-borrow rate for that position. The fee is charged on a pro-rated basis depending on how many days you hold the position short. It will be assessed to your account at the end of the month or upon settlement of the closing trade. Finally, if you open and close a short stock position intraday (not held overnight), you will not be subject to a hard-to-borrow fee.
Example Calculation of a Hard-to-Borrow Fee:
Current price of stock = $11.00
Number of shares sold short = 10,000
Hard-to-borrow rate = 5%
Current industry convention = 1.02
* The current industry convention percentage set by the securities lending market participants is subject to change.
(market price of stock) x (1.02) = Per share collateral amount (rounded up to the nearest dollar)$11.00 x 1.02 = $11.22 = $12.00
(Per share collateral amount) x (share quantity) = Trade value$12.00 x 10,000 = $120,000
(trade value) x (annual hard-to-borrow rate) = Annual hard-to-borrow fee$120,000 x 0.05 = $6,000
(annual hard-to-borrow fee) / (360 days) = Daily hard-to-borrow fee$6,000 / 360 = $16.67 daily hard-to-borrow fee