How it works
In system margin trading, short sales are made possible by a securities finance company lending shares through securities firms. When the balance of short positions in a given stock grows large relative to long (margin buy) positions and the supply of lendable shares becomes tight, the securities finance company may need to procure shares from institutional investors and others, and that procurement cost is charged as the short selling premium.
Who pays it, and points to note
The short selling premium is paid by investors holding short positions and received by investors holding long (margin buy) positions. The level of the premium fluctuates daily and can become larger than expected for thinly supplied stocks, so investors using short selling within system margin trading should understand that this cost may arise.