Manufactured payments are, broadly, defined as payments
representative of UK dividends, interest or overseas dividends paid
under contracts or other arrangements for the transfer of
securities.
Manufactured payments normally arise under repos or stock
loans where the transaction crosses an interest or dividend date.
For example, where a loan of overseas securities is outstanding
over the dividend date, the lender does not receive the real
dividend to which he would have been entitled had he not lent the
securities. The borrower therefore makes a payment- a manufactured
payment- to the lender as compensation for not receiving the real.
“Manufactured payments” may also occur where
there has been a `short' sale of securities. That is, a sale of
securities where the seller does not own the securities at the time
of selling them, so is required to acquire them between the date of
the bargain and the delivery date. A consequence of short selling
can be that the dealer sells the securities `cum-div' (with
dividend) but buys them `ex-div' (without dividend - leaving the
right to the next dividend with the seller). The dealer pays the
buyer a sum to compensate him for the dividend that he expected to
receive, but didn't. This is a manufactured payment.
