Something clicked when I was looking at the IBKR short data that u/mendobreadth shared today, and I wanted to share with the class.
In short, GME is defying the Golden rule of economics when it comes to shorting it.
Everyone knows the Golden rule of economics, but in case you don’t: price is a factor of supply and demand. Higher demand than supply makes price go up, higher supply than demand makes price go down.
So let’s apply that to shorting GME.
We’ll start with the demand, and according to IBKR, it is the highest demanded stock on the entire market to borrow. There is not a single stock on the market that has a higher demand to borrow. So demand is very high.
What about supply? Well, there’s two things to consider when analyzing the supply of GME to borrow. First, there are a fixed amount of shares in existence. So the supply is limited, and at a certain point it cannot (shouldn’t) increase. The second part of supply is how many shares have already been borrowed/shorted. GME has the largest value in open short positions on the entire market, by nearly double the next highest ticker. This means that a very large amount of GME shares have already been borrowed and shorted, so the supply of remaining shares to borrow should be very low.
(I know the supply should be negative at this point, but for this exercise I’m pretending all we know is that it’s very low)
So we know from the IBKR data that the demand for borrowing GME is as high as it can get, and the supply of GME shares to borrow is as low as it can get. So, according to the Golden rule of economics, the cost for borrowing GME should be astronomical. And it would be in a brokers best interest to charge more to short GME than any other ticker on the market.
In shorting stocks, the cost of doing it is the fee to borrow shares. This is an annual interest rate that is generally paid daily or weekly, depending on agreements. So, GME should have the highest interest rate to borrow on the market, and it shouldn’t even be close. Let’s look at IBKR data for highest costs to borrow.
Hang on. Let me just find GME on the list real quick. Wait… It’s not there. They have a list of the 15 highest borrow fees, and GME isn’t even on it. So I guess we can take a look at the rate on iborrowdesk, which also uses IBKR data.
The cost to borrow GME is 1.0% interest. For anyone paying attention lately, it’s been 1.0% for weeks. The demand to borrow goes up, the price of the stock goes up, the supply should be going down, yet the price remains about as low as it can get.
But it’s in IBKRs best interest to get as much money from fees as they can, which is a lot given how much demand there is to short GME. So what gives?
I think IBKR and other brokers are keeping the borrow fees for GME artificially low to help SHFs stave off margin calls. The interest is due on a regular basis – so increasing the borrow fees would likey put SHFs in a margin call. They wouldn’t be able to make the higher interest payments, so it would force them into liquidation, and that would be it.
Thomas Peterffy, the CEO of IBKR, admitted in January and again in February that IBKR had enough liquidity to meet the increased capital requirements, but chose to stop trading on GME anyways to “keep the price from going into the thousands”. So it’s well documented that Thomas Peterffy will do something that isn’t in his best interest to help hedge funds remain solvent. I think that is what’s happening here. There is no reason to not charge astronomical borrow fees on GME unless you knew doing so would set off the MOASS.
If I am right, the squeeze will still happen. This is just buying themselves some more time, one day at a time. In the end, we are inevitable.
Buy Gamestop. Hold Gamestop. Vote for Gamestop. Shop at Gamestop.
Ape together stronk.