A hard-to-borrow (HTB) stock is a stock for which shares are limited or difficult to borrow. This often occurs when a stock is heavily shorted or when there are relatively few shares available for lending.
If a stock is hard to borrow, short selling may be restricted or unavailable, borrowing fees may be higher, and share availability can change at any time.
Regulation SHO is an SEC rule that governs short selling in U.S. markets. It is designed to help promote orderly markets and reduce the risk of failed trades.
Under Regulation SHO, brokers must have a reasonable belief that shares can be borrowed before allowing a short sale (the “locate requirement”). Certain stocks with a high number of unsettled short positions may also be subject to additional restrictions, including temporary limits on short selling.
Because of these requirements, your ability to short a stock—and the costs associated with it—may change based on market conditions, share availability, and regulatory requirements.
How can this affect my account?
Whether a stock is hard to borrow can directly affect your ability to open or maintain a short position.
For hard-to-borrow stocks, borrowing fees may be higher, short selling may be restricted, or an existing short position may be limited or closed if shares are no longer available. Regulation SHO can also affect when and how you can short certain stocks, particularly during periods of increased market volatility.
These rules are intended to protect market integrity, but they may limit trading activity or increase costs for short sellers.
Uptick rule
The Uptick Rule is a trading restriction designed to prevent short sellers from driving a stock's price into a "death spiral" during periods of high volatility. It dictates that a short sale can only be executed at a price higher than the last traded price, or at the last price if that price was an "uptick" from the previous trade.
The rule is triggered only if a stock’s price drops by 10% or more from the previous day's closing price. Once active, the restriction stays in place for the remainder of the day and the following trading day to promote market stability and provide a "buffer" for buyers. By ensuring short sellers aren't constantly hitting the "bid," the rule helps maintain orderly markets and prevents aggressive speculators from exacerbating a panic.
Public rejects market orders when uptick rule have been triggered and validates limit orders placed with bids below the last tick in order to comply with the regulation.