How is the short interest amount calculated when borrowing stock to make a short sale?
When borrowing shares to execute a short sale, the borrower must deposit collateral with the lender in exchange for the borrowed shares. We calculate the required short collateral balance based on the standard U.S. industry convention.
The short collateral balance is calculated as:
(Prior Day's Settlement Price x 102%) x Number of Shares Shorted = Short Collateral Balance
The daily short interest amount is calculated as:
(Effective Short Interest Rate / 360) x Short Collateral Balance = Daily Short Interest Amount
The 102% of prior day's price is the standard U.S. convention for collateral and may differ outside U.S. based on local laws. But collateral will never be less than 100% of price x shares shorted.
The daily short interest amount accrues and is deducted from your account each day you maintain a short stock position.
It is important to monitor your short collateral balances and interest charges to avoid potential deficiencies or margin calls.