Manufactured Payment
Categories: Banking
Stock lending is fairly common. Imagine going to your neighbor's house to borrow a cup of sugar. Only, in this case, you're borrowing 500 shares of NFLX. This is "borrowing stock."
The scenario comes up in short-sale situations. Those transactions act as bets that a stock will go down. You borrow the stock from someone else, sell the shares on the open market, then cross your fingers and hope that the share price will fall. If it does, you can buy the stock back at the lower price, give the shares back to the person who lent them to you, and keep whatever profit you booked.
Complications come up in this scheme, however, when the stock involved has a dividend. A dividend is cash that a company sends to its shareholders. It's like a "thank you" payment for the people holding the firm's stock.
A company issues a dividend of $1.00 per share and you hold 1,000 shares...you get a check from the company of $1,000.
But if you borrow someone's stock and sell it, and the company issues a dividend before you return the stock, your buddy (who generously let you borrow their shares) is out of luck when it comes to that dividend. They didn't have the stock when the payments were calculated and sent out.
Enter: a manufactured payment. It involves you paying that dividend on the stock you borrowed. You make up the dividend payments that the original stockholder missed while you were borrowing their stock.
It's like if you borrow someone's car with a full tank of gas. You drive it around for a couple of days and then go to return it, after burning through half a tank of the fuel...fuel they paid for. It's only fair for you to fill up before returning the car. They loaned you the car, but they didn't agree to give you half a tank of gas.
Manufactured payments are the "filling the tank" equivalent of stock borrowing.
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Finance: What is PayPal?4 Views
Finance allah shmoop What is pai pao All right Well
in the beginning there were rocks And then there were
animal helps Then beads and jewelry then cash then credit
cards on dh Finally today papal Yeah So the history
of payment technology has seen some changes paying for stuff
quickly and easily using a few folded bills in your
wallet Is gray paying for that stuff while in your
ninja turtle One z pajamas from the comfort of your
lazy boy violence Even better So yeah paypal is an
electronic payment system that takes paying for things online with
a credit card One step further It's still routes payments
through the user's bank But everything can be done with
the well it's Just the click of a button once
you've linked paypal to your bank account Well there's no
more typing in long strings of numbers digging a credit
card out of your back pocket to check the security
code and dates and all that on that business you
just say yes Thank you kindly I would liketo buy
these anti gravity boots via paypal And just like that
those boots are well on the way to your front
Door for better or worse you know provided they've been
weighted down enough space Well paypal was originally created to
help people pay for mostly ebay purchases specifically as well
as you know a few adult art films but as
of two thousand fifteen well ebay and hey pal have
been separate companies You know breakups are hard So these
days paypal is just well doing its own thing helping
people everywhere process their monetary transactions How sweet and philanthropic
of papal to do that right They do it all
for free Yeah No not at all They don't do
it all for free In fact they're pretty expensive Paypal
is in the business of making money there A publicly
traded company Well how did they do that Well two
ways Mainly First they collect a service feet on transaction
Almost the time As long as you're just a sending
twenty bucks it's a mom for her birthday or to
your buddy kin for your entry into the football pool
Well the transaction is free to you but a merchant
i eat Anyone selling a product pays a fee on
every transaction Generally that fee is anything ever take about
Thirty cents per transaction And then there's a small surcharge
In addition based on the percentage in the size of
the transaction right Well the other way papal makes money
is by earning interest on all that money sitting in
your account like it's just sitting there And then they
invest it and they make more in interest than you
do Just sitting with cash Right Five hundred fifty dollars
You've been socking away online for a rainy day Well
paypal has been making it rain because they invested in
Yes Maybe they only make two per cent of that
money and interest But there are a lot of people
let money sitting there Paypal account So with billions or
tens of billions or hundreds of billions of dollars making
two percent two papal with almost no costs associated with
that that's Pretty margin friendly kind of business right Add
it all up and pay pallor doing just all right
for themselves So yeah until the next great revolution in
quick and easy payment processing happens Paypal and other similar
sites like venmo and apple pay and maybe stripe Well
there are where it's at Still a little tricky to 00:03:21.005 --> [endTime] trade your animal pelts though for all that dollars