Short Interest Explained: Days to Cover and Borrow

What is short interest?

Short interest is the total number of shares that have been sold short and not yet bought back, measured at a point in time. In the US, brokers report it to FINRA twice a month, and FINRA publishes the totals about a week and a half later.

It is a snapshot of open short positions, not a measure of how much short selling happened on a given day.

Two ratios are built on top of it. Days to cover divides short interest by average daily volume. Short % of float divides it by the number of shares available to trade. Both are useful context and both have caveats, mostly about stale timing and about which float figure sits in the denominator. Separately, short sellers have to locate and borrow shares, and the cost and availability of that borrow is its own data set.

How short interest is collected

Under FINRA Rule 4560, broker-dealers report the gross short positions in customer and proprietary accounts for every equity security, listed or OTC. The schedule works like this:

1. Settlement date. Positions are measured as of the settlement date on (or just before) the 15th of the month, and on the last settlement day of the month.
2. Due date. Firms must report by 6:00 p.m. ET on the second business day after that settlement date.
3. Publication. FINRA compiles the reports and publishes the data on about the seventh business day after the settlement date.

So a short interest figure published today describes positions from roughly one and a half to two weeks ago, and it will not be updated again for about two weeks. FINRA posts the exact calendar of settlement and publication dates on its website each year.

Days to cover, with numbers

Days to cover asks: at recent trading volume, how many days of total volume would it take to buy back every share sold short?

Hypothetical Company X reports:

Hypothetical figures.

Two things to keep in mind. The result depends heavily on which volume average is used (20 days, 30 days, or the period between reporting dates), and different data providers choose differently. And a sudden volume spike, measured with relative volume, shrinks days to cover mechanically.

Short % of float and its caveats

Short % of float = short interest ÷ float. With 3,000,000 shares short and a float of 20,000,000 shares, Company X's short interest is 15% of float.

The arithmetic is simple. The denominator is not:

• Float has several definitions. Some providers subtract only insider and affiliate holdings from shares outstanding. Others also subtract restricted shares that cannot yet be sold. The SEC's public float concept for Form S-3 eligibility is different again. The same short interest can therefore read as 15% from one provider and 25% from another.
• The two numbers come from different dates. Short interest is as of a settlement date. Float is often derived from the last 10-Q or 10-K cover page or an ownership filing, which can be months older. If the company has issued shares since, the float is understated and the percentage is overstated.
• It can exceed 100%. A share that is lent, sold short and bought by someone else can be lent again. Short interest counts each short position, so it can be larger than the float.
• Dilution changes the base quickly. A company selling shares through an offering can grow its float between reporting dates.

Borrow: locate, fee and availability

Before selling short, a broker must have reasonable grounds to believe the shares can be borrowed and delivered by settlement. This is the locate requirement in Rule 203(b)(1) of Regulation SHO. In practice, short sellers borrow shares from lenders (often through their broker's securities lending desk) and pay a fee.

• Borrow fee is quoted as an annualized percentage of the position's value. A 50% annual fee on a $100,000 short position costs about $137 a day ($100,000 × 50% ÷ 365).
• Availability is how many shares lenders have on offer. When availability is low, a stock is often called hard to borrow, and brokers may charge more or decline new short sales.
• Recalls. A lender can recall shares, forcing the borrower to return them or find a new lender.

Fees and availability change through the day and differ between brokers. There is no single official borrow rate.

The Reg SHO threshold list

When sellers fail to deliver shares at settlement, those fails are tracked. Under Rule 203(c)(6) of Regulation SHO, a threshold security is an SEC-reporting company's equity security with an aggregate fail-to-deliver position, at a registered clearing agency, of at least 10,000 shares and at least 0.5% of total shares outstanding, for five consecutive settlement days.

Each listing exchange (and FINRA, for OTC securities) publishes a daily threshold list. If a clearing firm has a fail in a threshold security that persists for 13 consecutive settlement days, Rule 203(b)(3) requires it to close out the fail by purchasing shares, and it cannot accept further short sales in that security without first borrowing or arranging to borrow. A stock leaves the list after five consecutive settlement days below the threshold.

For Company X with 40,000,000 shares outstanding, 0.5% is 200,000 shares. A fail position of 150,000 shares would not qualify, because it clears the 10,000-share test but not the 0.5% test.

The short sale circuit breaker

Rule 201 of Regulation SHO adds a price test. If a stock falls 10% or more from the prior day's close during regular hours, short sales are restricted for the rest of that day and the next trading day: they can only be executed at a price above the current national best bid. This is often called the alternative uptick rule.

How to check short data on Signal8

• Each company page has a Shorts tab, for example AAPL's Shorts tab, which brings short interest and related data into one view.
• The Squeeze scanner lists stocks with at least 15% short interest and a squeeze score of 50 or more.
• In the Terminal, open a symbol to view its quote and volume alongside other research.

Related reading: how relative volume is measured in the premarket, float vs shares outstanding for which float sits in the short % denominator, and what a trading halt means.

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