This rule is one of the most common worlwide. Applies in all exchanges I know of, including those who allow short positions without a lender for the actual stock. Figured this out while I was dumb and trying to get the dividend on an European stock hedged with its ADR. Did not work OHLC
The time to get my SRD report... More accurately : I realized this when I received a SRD report listing some higher than expected fees on a stock I was short on, and understood then that hedging the original with the adr to get the div would not work. I was a newbie at this time... OHLC
Try arbing options with bastard deliverables and the OCC screws up the report. Or, we screw up our databases ...
BTW, the idea was not so stupid, since, on some exchanges, the short is not a sale of borrowed equity, but the sale of a synthetic contract ending at calendar's month end. The cost of carry is billed separately and autocovering, long + syn short, for example, is explicitly prohibited, which is sufficient to forbid getting the divs without risk on a single exchange. OHLC
I didn't say I didn't know it, I was surprised by how many didn't know the rule. So I figured this would be a good thread for those who didn't know the rule but would never admit to it.