The strangest question just crossed my mind, so I thought I would float it here:When you borrow someone's stock to sell it short, you have to pay them dividends for the privilege. But what happens when the shareholders' meeting comes around? Do you have to print up a prospectus for the person you borrowed the stock from? How is that person to vote their shares? Where do they get their tickets to the meeting, and their nifty 10%-off coupons?
Yes, you pay the dividends to the stock owner.As for the rest, the broker handles that just as he handled the dividend payment. Ed
As for the rest, the broker handles that just as he handled the dividend paymentOkay, but that still doesn't answer the original question. You have two people who "own" the same shares of a company. Theoretically, both are entitled to vote their shares. If everyone exercised that right, you'd have something which resembled a Chicago election. I assume the SEC and the brokerages just sweep this issue under the rug because you never have anywhere close to 100% participation in a shareholder vote, but I've never seen a satisfactory explanation of the legalitities involved.FWIW,Mark
I never considered the voting so never chased down an answer for that, sorry.Ask your broker. He should be able to tell you the answer.. Ed
"You have two people who "own" the same shares of a company. Theoretically, both are entitled to vote their shares..."not really. the person shorting the stock 1)borrowed shares, 2) sold the shares at hopefully a high price. hence, the person shorting doesn't own the shares and does not have voting rights.hmmm, i can see your point. the company only pays one dividend since the person shorting pays the dividend to the original owner of the stock.hmmm, how does the voting work? if i'm the original owner, i have voting rights (i wouldn't know if the shares were borrowed, and i shouldn't loose voting rights anyway).if i'm the new owner of the stock (after someone shorted it), i would expect to have voting rights. the number of shares didn't change, just the number of owners. hence, the number of votes/share should be the same. so, on record, the company has two different people owing the same certificates. it would seem that the votes/share just doubled.i'll have to think about this some more.
".. on record, the company has two different people owing the same certificates. it would seem that the votes/share just doubled.."i just thought of something. if i have the certificates in my possession, my shares connot be shorted.the only shares that are shortable are the shares in the street name. thus, your broker gives up his/her voting rights for the "new" second owner of the stock.so, the company only has one owner of certificates on record, the broker.
When you short a stock, your broker "borrows" shares for you to sell. Can your broker only borrow from other shareholders at the same brokerage? Would this also explain why some brokerages don't let you short certain companies? This would not resolve the voting issue since the shares held in the brokers name are fixed, if all are shorted and all are voted, that would still be twice as many votes as are held by the brokerage.I agree that this is getting pretty hypothetical since even a high short ratio is usually low compared to total shares outstanding. Additionally, the voting rate is also low that the brokerage could probably swing it. Except that the votes are sent by individuals to a proxy service, not to the brokerage. hmm?Thoughts,Ant
I don't know what the real truth is, but unless there are some weird regulations that change the situation, it would work out like this:A buys stock on margin. Broker holds it, and also has the right to lend it out, since it is on margin. A owns the stock.B shorts stock: Broker takes it from A's account, lends it to B. B sells on open market to C.At this point, C is the owner of the stock, not A, and presumably gets the voting rights for it. (I think someone said that A gets an annual report also.)Dale
I asked this same question on the "Ask a Foolish Question Board" in the Information Desk folder. See post 47377 for an excellent answer.
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