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understanding the process/payment of short sale dividends
I would suggest the following rationale : This appears to be a most unsatisfactory state of affairs, however, you can bet that this is how things are handled. As to who receives the dividend you have payed, this will be whoever the counter-party (or counter-parties) are that were assigned the exercise. EDIT Looking at the Dec16 SPY options, we see that the expiry date is 23 Dec.  Therefore, your options have been exercised prior to expiry.  The 3AM time stamp is probably due to the "overnight batch processing" of your brokers computer system.  The party exercising the options will have chosen to exercise on the day prior to ex-dividend in order to receive the dividends.