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Defend Your Rate

ADT Inc. provides security systems and services.  The Boca Raton, FL-based company has a market capitalization of $6.6B and 19,000 employees.  After an uninspiring H1 2019, shares have outperformed the broader market, rising from a $4-handle in August 2019 to more than $9 now.  Short Interest is about 10% lower than last summer but lenders are still able to charge more for borrow.  The borrow fee rose from single-digits to 30% today.  Dislocations like this may happen when more shares are removed from the lending market than shorts covering.  

Prime brokers can rehypothecate securities with a market value up to 140% of the debit balance.  Stock can become unlendable if the debit balance is removed or if the prime broker chooses to rehypothecate other assets.  Participants in fully-paid lending programs, whether institutional or retail, always have the option to discontinue lending.  We see evidence of tightening with utilization at 97%.  This morning we were asked by 5 counterparties to lend to them.  We had an inventory show from one large retail broker, as well.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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