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  • pagan942 pagan942 Sep 12, 2007 1:23 PM Flag

    Shorts & Spec Div'd

    Question. Borrowers of stock have to pay the dividend to the lender. Do they also have to pay any special dividends declared ?

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    • wrong again. you think you would be used to it. do you think there's a reason why you are losing money here?

      here's an excerpt from an email ameritrade sent me regarding a margin account with them:

      "If you wish to not have your securities loaned out, you will need to either:

      1) Reduce your debit balance to zero by liquidating securities or depositing funds to pay the debit amount.


      2) Elect to have all securities in your account exempt from being loaned. Your request will apply to all positions in your account. Requests cannot be made for specific securities only. If you prefer this choice, send a written request stating that you do not want your securities loaned."

      pay attention, undershorts. you might learn something.

    • If you opened a margin account, you have agreed to allow lending of your stock. Sending a letter will get you nowhere.

    • If everyone takes the deal, it will take considerably longer for the pps to recover. I've been contacted several times since July, the stock is difficult to borrow. Like I explained, they started at 12% but are now offering 17.

    • it's a good thing you don't need the money because you have and will continue to lose quite a bit owning 9000 shares of cors.

    • you should be able to send a letter to your broker saying that you don't want any securities in your account lent to anyone. it's probably not part of the standard terms and conditions, but if you ask them they will tell you what procedure you need to follow.

    • 17% plus the 8% dividend sounds good to me. I think everyone should try and get the same deal. As long as you can get the stock back anytime you want it, such as if you decided to sell your position, you'd be crazy not to loan it out. In substance, it results in a 25% distribution (8% dividend plus 17% fee). It's worth giving up the preferential tax rate on the dividend for the extra income.

      If it's true that they're paying 17% then it's also an indication of how hard it is to borrow the stock.

      On the otherhand, if we can't get the same deal then we should not let our stock be loaned out. This would protect the 15% tax rate on the dividends as well as force the shorts to cover.

    • They offered me 17% monthly based on the daily price. This offer was raised from 12%. To make the numbers easy, if the stock was $12.50 for each day in September they would pay me about $1,593.75 to borrow the shares for the month. I would also receive all of the dividends. They can pound sand though; I don't need the money and I'm not lending my shares for some jackass to short. I never buy on margin, so my shares are not available to short.

    • "Your broker makes out OK. You sold the stock you borrowed for about $66,000. The broker is using the proceeds interest free. "

      Your right about the $50.00. I did collect 2.2% interest on the $66,000 from the sale of the borrowed stock. I have not found an entry on the statement showing where I paid anything in loan fees, just the dividend.
      It has to be there, no way are you borrowing for free.

    • playthrough2001-

      What did SmithBarney offer you? 17% of what??


      I looked at the Chase margin agreement and they can loan out anything in the margin account. I think I would have to transfer any stock I didn't want loaned out, to a "Cash" account, where I did not sign any stock loan agreement.


      The IRS Regulations require certain methods of allocating the "payments in lieu". It's somewhat complicated but seems in general to be the following:
      1. accounts are separated into two pools (individual & nonindividual)
      2. an allocation is made between the two pools
      3. then an allocation is made within each pool either by lottery or "First-in First-out"
      I think the IRA's are in the nonindividual pool.

      In any case, since almost the entire float has been loaned out, anyone whose stock is subject to being loaned is likely to lose some or all of the benifits of the preferential tax rate.

      This link should take anyone who's interested to IRS REG. 1.6045-2.

    • My broker spreads the "payment in lieu's" out over qualified accounts (IRA, Roth IRA), when available, in order to lessen the tax effect.

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