IMO, the settlement times should be at least halved, ie. T+1 becoming T+1/2, meaning that then one could use the capital 2x on the same day. More would be even better.
You get the cash in that it offset any margin loan you are taking. But you can’t use it for anything you want, just like a commercial bank loan can’t be used for anything you want.
But let's circle back to my initial question. If I'm not being credited for the borrowed shares, which somebody else BOUGHT FROM ME, why should I be responsible for paying the dividend to THAT person?
Let's say, in a simple situation, a company has 100,000 shares outstanding, and I own all those shares. You short 1000 Shares and sell them to Joe. Now Joe owns 1000 Shares and I own 100,000 Shares. Your broker borrowed 1000 shares from my broker to delivery these shares to Joe. The company pays as dividend of $0.50 for each of the 100,000 shares out there. I own 100,000 shares but my broker only has 99,000 shares in book entry and Joe has 1000 Shares. Someone must make good on the 1000 shares lent from my account.
That's not what I'm asking. If Joe bought 1000 shares FROM ME, whatever he paid (minus the fee) should be credited to my account, and I should be able to use that money to pay out the dividend. But that's not the case here, or is it?
No because the proceeds from shorting the stocks is not your money. It's the collateral that you pledged to your short position and it cannot be used to buy the stocks. To buy stocks with that proceeds is basically borrowing those funds again but with nothing to pledge to it leaving the broker all exposed to counterparty risk. No broker would do that.