Here you'll find quick answers to common questions about short selling (securities financing) of US stocks.

1. What should I know about short selling (securities financing) of US stocks?

Securities financing represents one of the fundamental methods for short selling in the US stock market - a strategy that contrasts with taking a long position. When you anticipate a stock's price decline but do not own it, you can borrow shares of the stock from Longbridge by using funds (margin) in your securities account as collateral and sell the stock.

2. How can I profit from short selling (securities financing)?

After selling the borrowed shares, you can wait for the price to decline before repurchasingthe same number of shares at a lower price. Once the shares are returned to Longbridgewith interests, you can profit from the difference between the higher selling price and the lower repurchase price.

3. Which accounts can I use for short selling (securities financing)?

Since short selling (securities financing) requires margin collateralization, you can only use margin accounts for the transaction. Cash accounts currently do not support short selling (securities financing).

4. What requirements should I meet for engaging in short selling (securities financing) of US stocks?

To engage in short selling (securities financing) of US stocks, you need to meet the following requirements:

• Open a Longbridge Integrated A/C (margin account);
• Maintain sufficient buying power (from account assets to initial margin required for securities financing);
• Ensure the stock is eligible for short selling through Longbridge.

Notes:

• Short selling (securities financing) of US stocks operates as a form of margin trading. To engage in this activity, your account's total assets should meet or exceed the initial margin requirement for the specific stock you wish to borrow. Accounts falling below this threshold will fail to execute short selling (securities financing) transactions.
• Each stock eligible for short selling carries distinct initial margin requirements due to varying margin ratios. The specific margin ratio is available on the details page of eachstock that supports  short selling (securities financing).
• You can enhance your buying power by depositing cash or eligible collateral stocks.
• During margin trading, Longbridge monitors account risk through its proprietary calculation methodology. When your account's overall risk management value drops below acceptable levels, Longbridge may initiate forced position liquidations.

5. Under what circumstances will I encounter a margin call after short selling (securities financing)? When will I face forced liquidation risks?

When the price of a short-sold stock rises, your account's net asset value may drop below the required maintenance margin, prompting a margin call.

Typically, you may face a forced liquidation if either the net asset value remains below the maintenance margin level, or the margin call deadline passes. Longbridge determines the forced liquidation price according to prevailing market conditions. During periods of heightened market risk, your account may be subject to forced liquidation at any time.

6. How do I know which stocks are available for short selling?

To determine if a stock is available for short selling, you can navigate to its details page and look for the "support shorting" indicator in the upper right corner. This designation confirms the stock's short-selling eligibility. By accessing the "margin information" section, you can find detailed specifications including the required margin for short positions, interest rates, and short pool availability. Please note that the list of stocks that support short selling may be periodically updated in response to changing company policies and market risk assessments.

7. What fees should I pay for short selling (securities financing)?

You need to pay two types of fees for short selling transactions:

• Commissions, platform fees, and third-party charges associated with buying and selling stocks. These fees are identical to those applied to long positions in the same market.
• The margin interest‌. This applies when your borrowed stocks are sold but not repurchased to close your position within the same trading day. The margin interest rate may vary by stock, and you can find it on the margin information page accessible viathe stock details page.

8. What should I know about the interest rate for short selling (securities financing) ofUS stocks and its calculation?

The interest rate for securities financing = daily quantity of short-sold stocks that have been settled * [(closing price * 102%) rounded up] * the reference interest rate for short selling / 360.

Notes:

• Securities financing interest is calculated daily and deducted at the end of the month.
• Since both the short selling reference interest rate and closing prices are subject to fluctuations, the final margin interest settlement is determined using the reference interest rate after daily settlement. For specific charges, please refer to the monthly statement.
• Please note that short selling reference interest rates may differ across stocks and change over time. Please view each stock's details page for specific information.

9. When will my margin interest begin to accrue for short-sold US stocks?

In the US stock market, your trades will be settled on a T+1 basis. Margin interest starts accruing once you have completed your stock settlement, with the interest being cleared at month-end. Please note that while the interest is not deducted daily during the short-selling period, it will be calculated daily and will impact your buying power. Therefore, we recommend maintaining adequate margin in your account.

10. What are the collateral rules for short selling that I need to follow?

When you execute a short sale by borrowing shares from a broker and selling them, the system automatically calculates a collateral amount to ensure that you are able to repay the borrowed shares at any time. This amount, equivalent to the real-time cash value of the borrowed shares, is held as margin to ensure the shares can be returned.

Please note that the collateral amount required for closing out a short position is separate from your cash buying power. Should deducting this collateral from your cash balance result in a debit, interest will begin accumulating on the outstanding amount.

11. Does short selling affect my credit limit?

When you lack sufficient cash or wishes to initiate a short sale, the broker will lend money to you to facilitate the transaction, thereby using up the credit limit. The followingexamples demonstrate this mechanism:

Example 1

A client maintains a long position in US stocks with adequate buying power but no cash.

When 1 share of AAPL.US is short sold at USD 130 per share, and the initial margin requirement is USD 50, it means that the broker lends the client USD 50 to short sell the stock, thus using up USD 50 of the credit limit.

As a result, the broker lends the client USD 50 for the short sale, which will use an additional USD 50 of the financing limit.

Example 2

The client holds a long position in US stocks with sufficient buying power, with USD 100 in cash.

When 1 share of AAPL.US is short sold at USD 130 per share, and the initial margin requirement is USD 50. The client's cash of USD 100 is sufficient to open the position without borrowing from the broker, so it will not use up the credit limit.

12. How can I short sell US stocks?

To initiate a short sale, you can navigate to the trading interface and select "sell". The system will display the number of "shortable" shares below the quantity field. You may then enter the short selling quantity (within the available shortable amount) and submit theorder directly.

13. How can I reverse from a short position to a long position？

You need to close your existing short position by repurchasing the shorted shares before placing a new buy order. For instance, if you hold a 200-share short position in BABA, you will need to buy back all 200 shares before placing a new buy order. Attempting to directly purchase 400 shares would result in a failed order.

14. What are the precautions for short selling US stocks that I need to pay attention to?

• Short selling is not universally available for all US stocks at all times. Certain stocks with low prices or limited liquidity may be restricted from short selling. Even when you have successfully placed orders for stocks with limited liquidity, there may be instanceswhere the stocks fail to be borrowed during the transaction, making short selling thesestocks unreliable.
• You cannot maintain both long and short positions in the same stock simultaneously. This restriction applies to various order types, including conditional orders—a single securities account cannot hold opposing positions in the same stock. If you short sell the exact quantity of stocks you currently hold, this will be treated as closing your position. Attempting to sell more stocks than you own will result in a rejected order. To perform the opposite operation, you need to first close your existing position by selling the heldshares before placing a new short selling order. For example, if you hold 200 shares of BABA, you should all the shares before initiating a short sale. An attempt to sell 400 shares directly would lead to a failed order.

Conversely, if you short sell a stock before trying to buy more shares than those in yourshort position, the order will be rejected. To execute this transaction, you should first close your short position by repurchasing the shorted shares before placing a new buy order. For example, if you hold a short position of 200 shares of BABA you will need to repurchase all the shares before initiating a new purchase. An attempt to buy 400 shares directly would result in a failed order.

• When a dividend is paid during a short selling period, the borrower (short seller) will be responsible for compensating the lender for the dividend amount. While the short seller sells the stock in the market, the ownership of the stock remains with the lender, who is consequently entitled to the dividends. Since stock lending deprives the lender of their dividend entitlement, this payment obligation falls to the short seller. If any dividend is paid during the short selling period and the short seller still holds the short position one trading day before the ex-date, Longbridge will deduct the corresponding amount from the short seller's account on the dividend payment date. In this case, the actual equity will remain unchanged, as the stock price will drop after ex-right and the short position will rise by the same amount of paper profits to offset each other. To avoid the dividendpayment, you may close your position one trading day before the ex-date.

15. What risks of short-selling (securities financing) in US stocks should I notice?

• Asymmetrical risk and reward

The asymmetry between risk and reward is an intrinsic aspect of short-selling. In theory, when you purchase a stock, the maximum potential loss occurs if the stock price falls to zero, resulting in a complete loss. Conversely, when you engage in short selling, the potential loss is limitless, as the stock price can keep rising. This may lead to losses of 200%, 300%, or even more.

• Time cost

When you engage in short selling, you need to consider the time factor. On the one hand, short selling incurs daily interest costs that accumulate over time. On the other hand, uncertainty in short selling mainly arises from the duration of your position. If you maintain a short position for a long period, you may face losses due to stock pricefluctuations.

• Interest rate risk

After you place a short-selling order, the interest rate remains variable. The interest ultimately paid by you is based on the actual interest rate for each day from T+1 and is settled monthly. The short-selling interest rate cannot be predetermined. If the short-selling demand for a stock significantly grows during the period when you hold its short position, interest rates may rise substantially, leading to higher short-selling costs that you will need to bear. In certain cases, this could result in losses on the short position.

• Corporate actions

Certain corporate actions, such as mergers, acquisitions, and dividend payments, may increase short-selling costs. For instance, when a company announces a dividend payment, it typically reduces the market supply of shares, which may result in higher short-selling costs.

• Delisting and suspension

When a stock is delisted or suspended from trading, you may fail to cover your short positions since the stock cannot be traded. However, the securities financing activity is still recorded and can only be terminated once the delisting process is completed or trading is resumed. This process may take several days, months, or even longer, particularly in cases of bankruptcy liquidation. During this period, you should continue to pay securities financing fees based on the delisting price or the price from the last trading day, which may be quite high sometimes.

• Stock return

We reserve the right, either at our discretion or upon the request of a third party, toterminate any such lending and borrowing arrangements and to demand the immediate delivery or return of the underlying investment products. You need to comply with any requests for the delivery or return of these products.

Disclosures

This article is for informational purposes only and does not constitute financial advice.