Identifier: C3T8L4 · Revision: 2026-10-26 · Classification: restricted

Decision and objectives

Calculate a supplied short collateral increase and recall cash need. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can calculate a supplied short collateral increase and recall cash need; distinguish trade execution from delivery of returned securities; evaluate a forced buy-in against the original short plan.

Prerequisite: C3T8L3; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

Borrowed securities may be recalled according to the loan agreement. A recall changes the return deadline; it does not guarantee replacement borrow. Collateral can also rise as the shorted share rises or a lender changes the eligible buffer. A buy-in is a purchase arranged to cure a securities delivery failure under the applicable terms, potentially at an unfavorable price and with extra charges.

Price and return drivers

In this hypothetical policy, required collateral = current short market value × 1.30. If sale proceeds are retained as part of collateral, additional own cash equals requirement less eligible retained proceeds and own collateral already posted. This is supplied account arithmetic, not a live statutory ratio. Market loss and higher collateral requirement are different ledger items; avoid counting the same cash debit twice.

Worked case

Hypothetical 1,000-share short sold TRY 100; proceeds TRY 100,000 retained and own collateral TRY 30,000 posted. At TRY 120, short value TRY 120,000 and requirement TRY 156,000. Under the stated policy no variation cash is separately debited, so additional cash = 156,000 − 130,000 = TRY 26,000. The open price loss is TRY 20,000, already reflected in net wealth, not an additional margin subtraction in this policy. Fee accrued TRY 500 and administration TRY 100 are paid externally.

Adverse case

A recall then forces repurchase at TRY 125 rather than the planned later TRY 90. Purchase costs TRY 125,000; short trading loss TRY 25,000. Add TRY 500 borrow fee, TRY 100 administration, TRY 400 trade cost and TRY 1,000 buy-in surcharge: net −TRY 27,000 before funding and tax. If the return date precedes purchase settlement, even this trade may not prevent failure. A simultaneous recall and collateral increase can exhaust cash before a forecast is tested.

Practical use

Read recall notice periods, early-return rights, substitution and buy-in clauses, and confirm transfer and settlement cutoffs. Track the securities receivable from a purchase until actual delivery to the lender. Authorized intermediaries and lending infrastructure supply a route, not permanent borrow. Include emergency funding, replacement fees, spread, penalties and tax in the stressed ledger.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Use term borrow only when its actual cancellation and recall provisions fit the horizon; the label alone is insufficient. Close voluntarily if affordable inventory cannot be retained through the objective date. Decline a short whose thesis requires months but whose recall process can force an unfunded next-day close.

Practice and references

Exercise: hypothetical short value increases to TRY 80,000; policy collateral factor 1.25; eligible retained proceeds plus own cash total TRY 88,000. Solution: requirement TRY 100,000; top-up TRY 12,000. If repurchase costs TRY 82,000 against original sale TRY 70,000 and all other charges TRY 900, net result is −TRY 12,900 before tax.

Takeaway: Evaluate a forced buy-in against the original short plan using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: short-sale-and-borrow. Formula: Short collateral cash illustration. Glossary: Borrow recall, Buy-in. Next lesson: C3T8L5. Topic test.

Sources and verification date (2026-10-26):

Shared reference guide