RE: RE: Prosperity dividend and shortsI've asked this question before but can't recall if it was answered and it is this: once EVG announces the last day of trading where existing shareholders at that date get the prosperity gold dividend, won't all shorts have to cover? If they don't who ever bought their shorts, esp.bought naked shorts, won't get the dividends..Not an expert on this but it seems to be a logical thought....
My understanding is that, like dividends, the new shares would go to the holder of record. Since the shorter never actually owned the shorted shares, s/he would be on the hook for the cost of the new company's shares when they cover their short position, just as they would any dividends paid while they were shorting a particular stock.
Since my investing experience is confined to my RRSPs, where shorting is disallowed, I have no direct knowledge of the exact mechanics.
Just one more risk to shorting that would have to be taken into account, i guess.
ZeroProfit
My Two cents... it's a bit complicated...... Naked shorting does not go on record that is reported... A legal loophole... (so if you're the owner of a naked short share, nobody knows it... you have a recorded share purchase regardless it was a naked or not transaction.. you are a shareholder albeit their are more shareowners than shares... in that case...... if dividends are in order.......... then you get the dividend). the confusing part is the more shares part of the naked short is under the umbrella of the naked short... The short is only on record at the shorting source if they have the short backed and if the shorter has no recorded backing on the (naked) short... they are not entitled to a dividend or any other compensation, therefore the amount of the naked short is automatically not included in the dividend compensation. the naked short floats in shadowland.. it did not exist in the first place such that when it is covered it disappears.
The seller of the naked short is under no pressure if he is institutional and in control of reporting or not having backing... they can continue the practice in the twilight... regardless... if there are shares to be sold, they can be naked shorted... If the company goes broke... the shorter keeps the money with no consequence... It would not be in their best interest to cover the share on a disappearing share.... in fact the very nature of naked shorting is that there is a paper trail only if they are audited. They are counterfeit shares that have no backing, and are ususally covered before they have to be recorded... this is a legal practice... there is a record of the transaction, but no harm done if it was done without being called. TD waterhouse allows me to short without backup (naked short) however they issue a warning that the short may be called at any time without notice.... a grey area that is allowed to institutional traders as well, for which the potential for abuse is significant, since they are guided by their own conscience and the shorts were never borrowed in the first place, they have no source to be defined... in reality unless someone actually knows the source and they have crossed the line by virtue of complaints... and the SEC has the will and authority to audit the shorter, the shorter will buy back the shares if and when he wants. It would be safe to assume the shorter is aware of the circumstances and is covering the short and their trail in lieu of a naked short if they feel threatened... if not..... business as usual.. You are misinformed... . the naked shorter will not be forced to buy back or cover the shares unless they are motivated by an abuse claim. In order for a naked shorted company to correct the situation they must share restructure by a very complicated process that is beyond this post...
True backed shorts will simply be called and covered by the institution for their shorting client, usually with notice by the shorting trader house if the owner of the borrowed shares decides to sell the shares... or the shares are being replaced with new issue.
I may not have covered all the points but the gist of your question should be answred.