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When you buy stocks it is very important to understand short selling dividends and voting rights.
Short Selling Dividends and Voting Rights |
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Where shares have been shorted and the company which issues the shares distributes a dividend, the question arises as to who receives the dividend. The new buyer of the shares, who is the "holder of record" and holds the shares outright, will receive the dividend from the company. However, the lender, who may hold its shares in a margin account with a prime broker and is unlikely to be aware that these particular shares are being lent out for shorting, also expects to receive a dividend. The short seller will therefore pay to the lender an amount equal to the dividend in order to compensate, though as this payment does not come from the company it is not technically a dividend as such. The short seller is therefore said to be "short the dividend". A similar issue comes up with the voting rights attached to the shorted shares. Unlike a dividend, voting rights cannot legally be synthesized and so the buyer of the shorted share, as the holder of record, controls the voting rights. The owner of a margin account from which the shares were lent will have agreed in advance to relinquish voting rights to shares during the period of any short sale. As noted earlier, victims of Naked Shorting attacks sometimes report that the number of votes cast is greater than the number of shares issued by the company. Short Selling Dividends and Voting Rights Topic - Technical AnalysisTechnical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume. |
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