Hard-To-Borrow List

Hard-To-Borrow List: What it Means and How it Works

What is a hard-to-borrow list?

A hard-to-borrow list is a record maintained by brokerages that identifies securities that are difficult to obtain for short selling. When shares are scarce, volatile, or otherwise constrained, brokers flag those securities so clients know the shares may be unavailable to borrow or will carry higher borrowing costs.

Key takeaways

• Short sellers must borrow shares before selling them short; brokers provide or source those shares.
• Stocks placed on a hard-to-borrow list are in limited supply or present other lending risks.
• Securities on the list may be unshortable, subject to higher stock-loan fees, or require broker approval.
• Brokers typically update their lists frequently (often daily) to reflect real-time availability.

How short selling and stock lending work

Short selling involves borrowing shares, selling them on the market, and later buying shares to return to the lender. Brokers can supply borrowable shares from:
* their own inventory;
* other clients’ margin accounts (with appropriate permissions); or
* lending relationships with other broker-dealers and institutional lenders.

The borrower pays interest and fees on the loaned shares. When a security is scarce, those fees rise.

Why securities end up on the list

Common reasons a stock becomes hard to borrow:
* Low available float or limited lendable shares.
* High demand from short sellers.
* Elevated volatility or recent corporate actions that increase lending risk.
* Regulatory or settlement constraints.

A security can also be flagged for operational reasons even if supply isn’t strictly exhausted.

Regulatory requirement: the “locate” obligation

Regulators require brokers to have a reasonable belief that the shares to be shorted can be borrowed and delivered before executing a short sale. This “locate” obligation is meant to prevent naked short selling (selling shares without a reasonable ability to borrow them).

Hard-to-borrow vs. easy-to-borrow lists

• Easy-to-borrow list: securities broker-dealers consider readily available for borrowing; clients often see these lists to facilitate execution.
• Hard-to-borrow list: securities with limited availability or higher lending risk; may be internal or visible to clients depending on the broker.

If a security is not on the hard-to-borrow list, it is generally assumed borrowable, though availability and costs can still change.

Costs and operational impacts

• Higher borrowing fees: Stocks in short supply typically carry increased stock-loan fees, cutting into potential short-sale profits.
• Execution risk: Orders may be refused or delayed if a broker cannot secure borrowable shares.
• Sourcing effort: Larger brokerages often operate securities lending desks to source difficult-to-borrow stocks for their clients and to lend inventory to other firms.

Practical tips for traders

• Check your broker’s borrowability lists and fee schedule before placing short trades.
• Factor stock-loan fees and availability risk into position sizing and exit planning.
• Consider alternatives (options, inverse ETFs, or avoiding the trade) if borrowing costs or execution risk are prohibitive.
• If the position is important, ask your broker about their securities lending desk and the likelihood of locating shares.

Conclusion

The hard-to-borrow list is a practical tool brokers use to signal lending constraints and risks associated with short selling specific securities. Short sellers should monitor these lists, account for higher borrowing costs and execution risk, and have contingency plans should shares become unavailable.