Record Date

A security is out on loan through the record date for an upcoming shareholder vote. Who is entitled to vote those shares, and what must the original lender do if it wants to vote them instead?

1. A.The party holding legal title as of the record date is entitled to vote, which is no longer the original lender once the security is out on loan; the lender must recall the security before the record date if it wants to vote those shares itself.Correct. Voting rights follow legal title, and the lender must recall before the record date to vote the shares itself.
2. B.The original lender always retains voting rights on loaned securities regardless of who holds legal title as of the record date.Wrong. Voting rights follow legal title, which passes to the borrower's side while the security is on loan.
3. C.Voting rights are suspended entirely for any security that is out on loan as of the record date, and no one may vote those shares.Wrong. Voting rights are not suspended; they are exercised by whoever holds legal title as of the record date.
4. D.The borrower must obtain the lender's written proxy instructions before voting, effectively voting on the lender's behalf rather than its own.Wrong. The borrower (or its counterparty) votes in its own right as the holder of legal title, not as the lender's proxy.

Why: Voting rights follow legal title, and once a security is out on loan through a record date, legal title sits with the borrower (or whoever the borrower's counterparty is), not the original lender. If the lender wants to exercise voting rights itself, it has to act before the record date by recalling the security, restoring its own record ownership in time to vote.

Under the T+1 settlement regime, the ex-dividend date for a regular-way cash dividend is normally:

1. A.Two business days before the record dateWrong. That was the ex-date convention under the old T+3 cycle.
2. B.The same business day as the record dateCorrect. T+1 aligned the ex-date with the record date.
3. C.One business day before the record dateWrong. That was the T+2-era convention, superseded in May 2024.
4. D.The payable dateWrong. The payable date is when the dividend is disbursed, weeks after the ex-date.

Why: Under T+1, a purchase on the business day before the record date settles on the record date, entitling the buyer to the dividend; therefore the first day the stock trades without the dividend (the ex-date) is the record date itself. Citation: SEC Rule 15c6-1 as amended (2024); Nasdaq/NYSE ex-dividend processing guidance post-T+1. Takeaway: ex-date = record date under T+1.

Wes is short 500 shares of Hadley Corp on the record date when Hadley pays a 0.75 dollar quarterly cash dividend. What happens in his account?

1. A.His account is debited 375 dollars, because a short seller owes the dividend to the person who lent the shares.Correct. 500 x 0.75 = 375 dollars, charged to the short seller as a substitute payment to the stock lender.
2. B.He is debited 375 dollars and may report it as a qualified dividend paid.The debit is right but the characterization is not. A substitute payment made by a short seller is not treated as a qualified dividend.
3. C.Nothing happens, because he does not own the shares.Not owning them is exactly why he owes the payment. The lender expects the same cash flow he would have received had he never lent the stock.
4. D.His account is credited 375 dollars, because he is short and benefits when the stock drops on the ex-dividend date.He does benefit from the price drop, but that shows up in the market value of the position. The dividend itself is money he owes.

Why: A short seller borrowed shares and sold them, so someone else now holds the actual shares and receives the real dividend. The lender is still entitled to be made whole, and the short seller pays for that. The account is debited 500 x 0.75, or 375 dollars, owed to the lender as a substitute payment. Review short sale mechanics in the equity securities topic.

Fennimore Income Fund declares a distribution of 0.55 dollars per share on Monday, December 8, payable Friday, December 19 to shareholders of record on Wednesday, December 10. Cressida redeems her entire 3,000 share position in good order on Thursday, December 11. With respect to that distribution she:

1. A.Receives the full 1,650 dollars on December 19, because she was a holder of record on December 10Correct. Record date ownership fixes the entitlement; 3,000 shares at 0.55 dollars is 1,650 dollars, paid on the payable date.
2. B.Has the 1,650 dollars added to her redemption proceeds at the December 11 net asset valueThe distribution is paid separately on December 19; it is not rolled into the redemption settlement.
3. C.Receives a prorated 3 days of the distribution, covering December 8 through December 10Fund distributions are not prorated by days held. The record list is a snapshot.
4. D.Receives nothing, because she held no shares on the December 19 payable dateThe payable date is only when the money moves. The record date decides who is paid.

Why: Entitlement to a declared distribution is fixed on the record date, not on the payable date. Cressida still owned the 3,000 shares on December 10, so she is on the record list and receives 3,000 x 0.55 dollars, or 1,650 dollars, when the fund pays on December 19 - even though she has held no shares since December 11.