Securities Lending Data: The Hidden Indicator for Short Squeezes on the ASX
Securities lending data reveals what short interest alone can't. Learn how utilisation rates, lending pool changes, and borrowing costs signal potential short squeezes before they happen.
Most investors tracking short selling on the ASX focus exclusively on short interest percentages. While that's a useful starting point, it misses half the picture. Securities lending data - the market where short sellers borrow shares - reveals critical information about supply constraints, borrowing pressure, and squeeze potential that short interest alone simply cannot show.
How Short Selling Actually Works
Before diving into the data, it helps to understand the mechanics. When a short seller wants to bet against a stock, they don't just click "sell." They must first borrow shares from someone who owns them.
Here's the chain:
- Institutional holders (super funds, ETF providers, fund managers) make their shares available to lend
- Short sellers borrow those shares through a broker, paying a fee
- The short seller sells the borrowed shares on the open market
- Eventually, they must buy shares back and return them to the lender
This borrowing market - the securities lending market - generates its own dataset that tells us how easy or difficult it is for short sellers to maintain their positions.
Key Securities Lending Metrics
1. Utilisation Rate
What it is: The percentage of lendable shares that are currently on loan.
Why it matters: A utilisation rate of 90%+ means almost all available shares are already borrowed. Short sellers wanting to open new positions will struggle to find shares, and existing borrowers face the risk of recalls.
| Utilisation | Signal |
|---|---|
| 0-20% | Low demand, plenty of supply |
| 20-50% | Moderate borrowing activity |
| 50-80% | Heavy borrowing, supply tightening |
| 80-95% | Very tight market, hard to borrow |
| 95%+ | Squeeze territory - virtually no shares available |
Real-world example: When a stock's utilisation climbs from 60% to 95% over a few weeks while the share price holds steady, it signals that short sellers are aggressively building positions but running out of available supply. Any positive catalyst could trigger a violent squeeze.
2. Lending Pool Size
What it is: The total number of shares that institutional holders have made available for lending.
Why it matters: The lending pool can shrink for two important reasons:
- Institutional holders withdraw shares - perhaps because they're becoming more bullish and don't want their shares lent to short sellers
- Fund outflows - when investors redeem from ETFs or managed funds, those shares are sold and no longer available for lending
A shrinking lending pool combined with steady or increasing short interest creates a supply squeeze. Short sellers are competing for a diminishing pool of borrowable shares.
3. Shares On Loan
What it is: The total number of shares currently borrowed by short sellers.
Why it matters: This is the actual demand side. When shares on loan are increasing rapidly, it means short sellers are actively building new positions. When shares on loan decrease, shorts are covering (buying back shares).
Pro tip: Compare shares on loan to total short interest reported by ASIC. ASIC data has a T+4 delay, but securities lending data can be more current, giving you an early signal of short covering before it shows up in ASIC reports.
4. Lending Pool Tightness
What it is: A composite measure combining utilisation rate, the ratio of shares on loan to available supply, and changes in lending pool size over time.
Why it matters: Tightness captures the complete supply/demand picture. A stock can have moderate utilisation but rapidly declining lending pool, or high utilisation with a stable pool. The tightness metric captures these nuances.
How to Spot Squeeze Setups Using Lending Data
The most powerful squeeze signals come from combining lending data with other metrics. Here's what to look for:
The Classic Squeeze Setup
- High short interest (>10%) - many short sellers are exposed
- Rising utilisation (approaching 90%+) - borrowable supply is drying up
- Shrinking lending pool - institutional holders are pulling shares back
- Increasing days to cover (>5 days) - it would take shorts many trading days to exit
- Positive catalyst approaching - earnings, clinical trials, regulatory approval
When all five conditions align, the stock becomes a powder keg. Any positive news forces short sellers to cover, but the tight lending market means they're all competing for limited shares, driving the price up rapidly.
Warning Signs of a Failed Squeeze
Not every high-utilisation stock squeezes. Watch for these counter-signals:
- Expanding lending pool - new institutional supply entering the market
- Declining short interest despite high utilisation - shorts are already covering quietly
- No fundamental catalyst - without a reason for the stock to rise, short sellers can wait patiently
- Very high borrowing costs - sometimes the lending fee itself tells you the squeeze is already priced in
Securities Lending Participants on the ASX
The ASX securities lending market involves several key participants:
Lenders (Supply Side)
- Superannuation funds - major lenders of shares for additional income
- ETF providers (Vanguard, iShares, BetaShares) - routinely lend underlying holdings
- Fund managers - institutional holders supplementing returns through lending fees
- Custodian banks - facilitate lending on behalf of institutional clients
Borrowers (Demand Side)
- Hedge funds - the primary short sellers
- Market makers - borrow for hedging and arbitrage
- Proprietary trading firms - various strategies requiring borrowed shares
Understanding who is lending and who is borrowing adds context. If a major ETF provider suddenly reduces their lending pool for a stock, it could signal a fundamental reassessment.
Practical Example: Reading the Data
Let's walk through how you'd analyse a hypothetical stock using securities lending data:
Stock XYZ has the following profile:
- Short interest: 12.5%
- Utilisation: 87%
- Lending pool: 15M shares (down from 22M shares 30 days ago)
- Shares on loan: 13M shares
- Days to cover: 8.2
- Borrowing cost: 12% annualised
Analysis:
The lending pool has contracted by 32% in a month while shares on loan have remained steady. This means the utilisation rate has been mechanically pushed higher. With 87% utilisation and only 2M shares of remaining supply, any further lending pool reduction could push utilisation above 95%.
At 8.2 days to cover, short sellers would need over a week of normal trading volume to exit. The 12% borrowing cost tells us this is an expensive position to maintain.
Verdict: This is a stock to watch closely for squeeze catalysts. The supply/demand dynamics are increasingly unfavourable for short sellers.
Where to Find This Data
Securities lending data for ASX stocks is available on our Securities Lending page, which tracks:
- Lending pool tightness rankings - stocks ranked by how constrained their lending market is
- Utilisation trends - historical utilisation charts for individual stocks
- Participant activity - which entities are lending and borrowing
- Lending inventory - real-time committed and available share counts
You can also view securities lending data on individual stock pages, where it's displayed alongside short interest history, price charts, and AI-analysed announcements for a complete picture.
Key Takeaways
- Short interest alone is insufficient - securities lending data reveals the supply side that short interest misses
- Utilisation above 90% is a red flag for short sellers and a potential opportunity for squeeze watchers
- Shrinking lending pools are more meaningful than static utilisation levels
- Combine metrics - the best squeeze signals come from high short interest + tight lending + positive catalyst
- Context matters - always consider why the lending market is tight before assuming a squeeze is imminent
Securities lending data transforms short selling analysis from a one-dimensional view (how much is shorted?) into a three-dimensional picture (how much is shorted, how hard is it to borrow, and is supply getting tighter?). For serious short squeeze analysis on the ASX, it's an essential dataset.