Please review some of the possible scenarios that may occur after you have either borrowed or lent shares via AQS using the TWS Stock Borrow/Loan tool.
Scenario: Trader A uses AQS to borrow shares, and then sells the borrowed shares short. Trader A then purchases shares to cover the short position. What will happen to the borrowed shares? Will PT automatically return them?
Explanation: Although the borrow feature is designed to support a short sale, currently IB will not force a return of the shares even if you have covered (terminated) your short sale. In other words, you can "re-short" the same stock using the same borrowed shares if you wish.
Please note, however, that if you have borrowed shares that remain in your account for three days and that are not supporting a short sale during that time (a "non-purpose" borrow), PT may return the shares to the lender.
Scenario: Trader A uses AQS to borrow shares, and then sells the borrowed shares short. Trader A then wants to return the borrowed shares while the short position is still open. Does PT allow the return?
Explanation: PT will allow Trader A to end the borrow that Trader A initiated, and PT will either "take over" that borrow to support the customer's short sale, or borrow shares from another party to support the short sale. From that point it is as if the customer initiated a short sale transaction without using the TWS Stock Borrow/Loan tool, and the transaction is handled and borrow rate is computed at the end of the day like any other PT-managed short position. Please note that the customer may be more susceptible to being "bought-in" on the short in this scenario.
Scenario: Trader A uses AQS to borrow shares and then sells the borrowed shares short. The borrowed shares are then recalled by the lender. What happens to the short sale?
Explanation: If he is logged in the customer will be notified of the recall in the Stock Borrow/Loan window and the borrow transaction will be closed. PT generally will attempt to locate replacement shares to borrow to support the short sale. The terms of the original borrow will no longer govern and the short sale will become an ordinary PT short sale. Customer is subject to being bought in if shares cannot be borrowed to support the short position.
Scenario: Trader A uses AQS to borrow shares, and then sells the borrowed shares short. Trader A then decides to try for a better borrow rate by sending in a rerate request. What could happen?
Explanation: If accepted, the borrow is rerated. If the rerate request is rejected, the customer can choose to keep the borrow at the current rate or can return the shares if they are either able to borrow the shares or want PT to attempt to locate replacement shares
Scenario: Trader A uses AQS to borrow shares and then sells the borrowed shares short. Subsequently, the lender issues a rerate request.
Explanation: If the customer is logged into the TWS they will get notified of the rerate request. They can either Accept or Reject the request. If the customer accepts the rerate, he will be charged the new fee rate starting that day. If the customer rejects the rerate or does not respond within 25 minutes of the request, the borrow will automatically get returned. PT generally will attempt to locate replacement shares to borrow to support the short sale. The terms of the original borrow will no longer govern and the short sale will become an ordinary PT short sale. The customer is subject to being bought in if shares cannot be borrowed to support the short position.
Scenario: A lender has shares returned by the borrower. Can the lender immediately (same day) look to re-loan those returned shares?
Explanation: The initial return is the borrower communicating their intent to return the shares; however, they may not actually return the shares in which case the share cannot be loaned again. The lender must wait until the shares settle back into PT's DTC account. If the shares settle late, they may not available to relend that same day.
Scenario: A lender issues a recall. Can the lender immediately (same day) look to re-loan the returned shares? Or do they have to wait a day?
Explanation: When a recall on lent shares is initiated, the underlying stock cannot be re-loaned until the shares settle back into PT's DTC account. Typically this occurs within the same day. However, the worst case scenario is a buy-in on the outstanding loan. This can be done no earlier than three business days after the recall, and settlement on the buy-in takes an additional three business days. If PT is failing to receive the bought-in shares from NSCC, re-loaning the shares could be further delayed.
Scenario: If a lender issues a recall, when do the terms of the deal stop and the loan get removed from the account?
Explanation: As mentioned above, typically this occurs within the same day. However, when a recall is initiated, the worst case scenario is a buy-in on the outstanding loan, and this situation may occur more frequently with hard-to-borrow shares than with easy-to-borrow shares. On the trade date of the buy-in, three days after the recall, the loan comes out of the account and the fees/deal is terminated. While the return is pending, the deal is still active.
Scenario: A lender issues a recall but the borrower fails to return the shares. What happens next?
Explanation: PT will initiate a buy-in (three days after the recall) and the loan is terminated. If the shares bought in are delivered to PT (i.e. three days after the buy-in), the shares are usually available to lend again. This can be delayed if PT is failing to receive the shares from NSCC. Regardless of whether or not a buy-in settles, the terms of any deal are terminated on the day of the buy-in.