Shortable Stocks

North America
Country	Shortable Stocks
United States	Shortable: 8911 Listed for Trading: 17885
Canada	Shortable: 1099 Listed for Trading: 4402

Europe
Country	Shortable Stocks
Germany	Shortable: 573 Listed for Trading: 2103
United Kingdom	Shortable: 1241 Listed for Trading: 2336
France	Shortable: 388 Listed for Trading: 1089
Netherlands	Shortable: 87 Listed for Trading: 269
Switzerland	Shortable: 270 Listed for Trading: 581
Belgium	Shortable: 64 Listed for Trading: 170
Sweden	Shortable: 232 Listed for Trading: 513
Spain	Shortable: 11 Listed for Trading: 179

Asia
Country	Shortable Stocks
Australia	None available at this time
Japan	None available at this time
Hong Kong	None available at this time

Information on Exceptional Short Sale Regulations

Limitation on Short Sales in Financial Services Companies (SEC Emergency Order 34-58592)

The SEC emergency order 34-58592 expired on 9 October 2008.

Limitation on Short Sales in Certain UK Financial Services Companies (FSA/PN/102/2008)

The UK Financial Services Authority (“FSA”) has issued a prohibition on short sales in approximately 40 UK-listed Financial Services Companies. The prohibition is complex and refers to any trading strategy that is economically equivalent to a short sale, and therefore applies as well to derivative strategies such as put option purchases or call option sales. The rule was scheduled to remain in effect, subject to FSA review, until January 2009. More information regarding UK short sale regulations can be found on the FSA website, and also at:
http://www.fsa.gov.uk/Pages/Library/Communication/PR/2008/index.shtml

Other Restrictions on Short Selling

Many countries have imposed special restrictions on short selling. IB has respected the regulations where the restriction is consistent with IB's existing systems. Where the regulations define security lending practices not currently supported by IB, we have restricted short sale activities altogether.

General Prohibition: Italy

Pre-Borrow Restriction (short sales allowed only with pre-borrow prior to the actual sale): IB does not support pre-borrow services⁽¹⁾. All stocks are therefore effectively restricted: Australia, Japan, Hong Kong.

Restrictions on Specific Stocks: UK, Germany, France, Netherlands, Switzerland, Belgium, Sweden, Canada, Norway.

Special Deliver and Buy-In Regulations for US Securities (SEC Emergency Order 34-58572)

SEC Emergency Order 34-58572 expired on October 17, 2008.

Securities and Exchange Commission Release No. 34-58773

Amendments to Regulation SHO

Interim final temporary rule and request for comments.

SUMMARY: The Securities and Exchange Commission ("Commission") adopted an interim final temporary rule under the Securities Exchange Act of 1934 (“Exchange Act”) to address abusive "naked" short selling in all equity securities by requiring that participants of a clearing agency registered with the Commission deliver securities by settlement date, or if the participants have not delivered shares by settlement date, immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the settlement day following the day the participant incurred the fail to deliver position. Failure to comply with the close-out requirement of the temporary rule is a violation of the temporary rule. In addition, a participant that does not comply with this close-out requirement, and any broker-dealer from which it receives trades for clearance and settlement, will not be able to short sell the security either for itself or for the account of another, unless it has previously arranged to borrow or borrowed the security, until the fail to deliver position is closed out.

Effective Date: October 17, 2008 except §242.204T which is effective October 17, 2008 until July 31, 2009.

Notes:

¹We expect to be able to offer these services in 4Q09.

Trader decides to sell a stock short in the hopes of being able to repurchase it at some later point in time at a lower price.
In order to make delivery of the stock, Trader A will need to actually have shares and so will need to borrow the stock from their broker or through another broker. Brokers keep a list of available inventory on what is called a Box List. Brokers populate the Box List through their own inventory and shares of other customers, such as trader C, that borrow on margin and agree to lend their shares⁽¹⁾.
Trader A, having found a source to borrow the shares⁽²⁾, executes a short sale transaction on trade date, or "T"⁽³⁾. Most major equity markets have a 3 day settlement period, i.e. the actual exchange of shares versus cash occurs on T+3, 3 business days after trade date. Settlement date is sometimes also referred to simply as "S".
On the morning of T+3 (or S), Trader A's Securities Lending Department determines its actual delivery obligations for that day. They consult their own Box List and if inventory is not available for borrowing, they consult the Box List of other brokers. Borrow transactions are arranged and the delivery of the shares from the lending broker to the borrowing broker is effected if needed. These borrowed shares⁽⁴⁾ provide Trader A's broker with the necessary inventory to deliver onward to settle the short sales⁽⁵⁾.

It is important to understand that there will be situations where a given stock appears to be borrowable on T, but in the intervening 3 days, the availability changes such that on T+3, it is no longer borrowable. This creates a situation in which the short sale trades will "fail", in other words the timely delivery obligation will not be met by the broker. In this case, a forced repurchase, or "buy-in" may be issued by the broker and the resulting trade will be charged to the trader's account, thereby reducing or eliminating the short position.
In exchange for Trader A selling the borrowed shares, the cash received from selling the shares is used as collateral on Trader A's borrowed shares ⁽⁶⁾.
Trader A's Broker invests the cash collateral and uses a portion of the interest to pay administration fees and stock borrowing fees. Because of steep administration costs, remaining interest is generally only paid out to large balance short sellers. In certain hard to borrow cases, borrowing fees are so high (greater than the interest earned) that the short seller needs to pay for the privilege of borrowing stocks.
Any dividend paid during the term of the short sale will be paid to the purchaser (Trader B) who holds the borrowed shares. The Lender of the Shares (Trader C) will need to be paid dividends by the Short Seller (Trader A) in what is called Payment in Lieu of Dividends⁽⁷⁾.
At some point in the future, the need to maintain the borrow is reduced (presumably by Trader A repurchasing his short position), or the lender (Trader C) may decide that he wishes to recall his shares for his own use. In the latter case, the broker will try to find another lender, the loan will simply be moved from Trader C to a new trader or broker, and Trader A's short position will remain unaffected.

In the case that no substitute loan can be arranged, the broker may notify Trader A that the loan has been recalled and that the trader must cover his/her position immediately. In many cases the broker will simply execute the forced repurchase, or buy-in, of the recalled shares.