AMC Stock’s borrow fee has skyrocketed to around 18% as of recently which is a relatively high borrow fee. AMC Preferred Equity (APE) units borrow fee were often below 10% between July and August. Between AMC stock and APE stock both have seen a higher and higher borrowing rate as the last few months have gone on.
WHAT ARE BORROW FEES?
According to Investopedia: “A stock loan fee, or borrow fee, is a fee charged by a brokerage firm to a client for borrowing shares. A stock loan fee is charged pursuant to a Securities Lending Agreement (SLA) that must be completed before the stock is borrowed by a client (whether a hedge fund or retail investor).”
The cost of a stock loan or borrow fee is based on how challenging it is to borrow a stock; the harder it is to borrow, the greater the charge.
The borrower must reassure the lender by putting up collateral like cash, treasuries, or a letter of credit from a U.S. bank since short sellers must sell the borrowed stock right away. If the security is cash, a portion of the stock loan cost may be offset by the interest that the stock lender pays to the borrower on the cash.
Typically, in most cases stocks are borrowed in order to complete a short sale. Therefore, the level of short interest gives a clue as to how much the stock loan charge will be.
So, if there are fewer shares available to borrow, stocks with a high level of short interest are more challenging to borrow than stocks with a low level of short interest.
WHAT DOES THIS MEAN FOR AMC STOCK
With the cost to borrow going up for AMC Stock and APE this could mean that short sellers will be more inclined to close their positions in theory and or not as much short selling could be seen with the price currently to borrow shares.
READ MORE: DID AMC STOCK HALTS RUIN THE SHORT SQUEEZE?