When is a short seller on the hook for the stock.

[fastwalker]

When is a short seller on the hook for the stock they shorted...(ie. Dividends, rights offerings, etc)

Short selling is hard enough to get your head around, not to mention all the particulars. If you have a basic understanding of short selling (if not, click here) then you probably know that as a short you are required to make up for any benefits a long investor would receive if they had actually owned the stock.When you short a stock, you are borrowing the stock from an investor or broker, then selling those shares on the open market to a 2nd investor. Even though you borrowed and sold the shares to another investor, the transaction between you and the borrower is still listed on the books as if the lender is still long on the stock and you are short on the stock (even though that person no longer owns the stock).Because that original investor who was kind enough to lend you the stock is no longer an actual shareholder with the company, the short seller is required to make up for any benefits that the investor would have received had they actually still owned the stock. In other words if a company pays a dividend to shareholders, the 2nd investor who bought the shares from the short seller would get the dividend check from the company. But because the original investor is no longer a shareholder of record (because the 2nd investor owns those shares now), then the short seller must pay the dividend out of their own pocket.Finally, when the short seller decides to close out the short position, they would buy shares on the open market (from a 3rd investor) and then give the shares back to the original investor, which closes out the short position and puts everything back to square one.