4 ms·

> the original dividend is paid to the person the short seller sold the share to It is not. Whatever side bets people may have with each other may result in m

by Lazare 8y ago

> the original dividend is paid to the person the short seller sold the share to It is not. Whatever side bets people may have with each other may result in money changing hands, but it's not the "original dividend". There are still 1000 shares, 1000 votes, 1000 dividends paid, 1000 dividends collected, 1000 ownership claims on residual assets. The bookkeeping can be confusing, but there's no shares being generated. > for questions of exposure to price fluctuations and that sort of thing, it's effectively creating a share. If you and I agree that if Apple goes up at least 10% by this time next week, I'll pay you $500, otherwise you'll pay me $300, then we both now have exposure to price fluctuations. How many shares, exactly, do you think we've created? I'd love to see your math. :) Just because you have exposure to X doesn't mean you own X, and it certainly doesn't mean you've created X out of thin air.

toast0 8y ago
The company only has 1000 shares, but because the lender effectively has a share and may not even know it was lent, investors hold 1001 shares. If a dividend is paid, the company pays 1000 dividends, and investors receive 1001 dividends. If the company goes bust, all 1001 shares have lost their value. If there's a shareholder lawsuit with a payout, there will be 1001 claims , although the company will only be willing to pay 1000, which can be a big mess for a court to figure out -- see some earlier articles from the same author as this. In your case, we've jointly made a wager. I wouldn't be an investor in Apple, like I would be if I held shares, and would still be, if my shares were lent out.
- gamblor956 8y ago
  A shareholder who lends their share to a short seller is not entitled to a claim for dividends from the company. They must get the dividends from the short seller.
  - toast0 8y ago
    Yes, that's what I said: the company pays out 1000 dividends, and 1001 shareholders receive a dividend.
- Lazare 8y ago
  > the company pays 1000 dividends, and investors receive 1001 dividends. You missed out the last part of that, which is "and investors pay 1 dividend". Investors as a class receive 1000 dividends on net. It all just nets out. > If the company goes bust, all 1001 shares have lost their value. And the person who sold a borrowed share will have gained money. The net change across the economy is the value of 1000 shares, not 1001 shares. > If there's a shareholder lawsuit with a payout, there will be 1001 claims This usually doesn't happen, but when it does, it's a paperwork error, and an artifact of the fairly archaic way share ownership is recorded in the US. It's not inherent to the system, and it doesn't tell you anything about how short selling works in principle.

by Lazare 8y ago

toast0 8y ago

The company only has 1000 shares, but because the lender effectively has a share and may not even know it was lent, investors hold 1001 shares. If a dividend is paid, the company pays 1000 dividends, and investors receive 1001 dividends. If the company goes bust, all 1001 shares have lost their value. If there's a shareholder lawsuit with a payout, there will be 1001 claims , although the company will only be willing to pay 1000, which can be a big mess for a court to figure out -- see some earlier articles from the same author as this. In your case, we've jointly made a wager. I wouldn't be an investor in Apple, like I would be if I held shares, and would still be, if my shares were lent out.

gamblor956 8y ago
A shareholder who lends their share to a short seller is not entitled to a claim for dividends from the company. They must get the dividends from the short seller.
- toast0 8y ago
  Yes, that's what I said: the company pays out 1000 dividends, and 1001 shareholders receive a dividend.
Lazare 8y ago
> the company pays 1000 dividends, and investors receive 1001 dividends. You missed out the last part of that, which is "and investors pay 1 dividend". Investors as a class receive 1000 dividends on net. It all just nets out. > If the company goes bust, all 1001 shares have lost their value. And the person who sold a borrowed share will have gained money. The net change across the economy is the value of 1000 shares, not 1001 shares. > If there's a shareholder lawsuit with a payout, there will be 1001 claims This usually doesn't happen, but when it does, it's a paperwork error, and an artifact of the fairly archaic way share ownership is recorded in the US. It's not inherent to the system, and it doesn't tell you anything about how short selling works in principle.