Note 34 — Chapter III · THE BEAR AND SHORT SELLING

“The borrower is also bound to pay the lender whatever interest by way of coupons or dividends or otherwise and all bonuses and accretions that would have been paid to the lender on the securities he has lent had he kept them. These are in practice treated as increases to the market price of the borrowed securities. The reason for this provision is that the lender is the actual owner of the securities and as such owner he is entitled to whatever they may earn by way of interest or in any other way. He has simply temporarily let another have the use of them, and, since the securities can be and are disposed of by the borrower, the lender would lose the interest, etc., which is paid on the borrowed securities between the date that they are borrowed and the date when they are returned and the loan cancelled, unless the borrower paid an equivalent amount to him. On the other hand, any assessment the lender would have had to pay on the borrowed securities during the continuance of the loan is a charge against him; for such an assessment is a burden adherent to ownership. In practice it is treated as a reduction of the market price.”—Eliot Norton “On Short Sales of Securities through a Stockbroker.” The John McBride Co., New York, 1907.