It is one of finance's odder rituals: every year come springtime around $100 billion in European shares goes on a little holiday. In the days running up to annual dividend payments of listed companies, many long-term shareholders, such as pension funds, lend their holdings to a third party. A week later, once the dividend has been paid to the temporary owner, the shares are returned safely to the pension funds' vaults, where they remain until the following spring.rnThe brief excursion is not designed to improve the share certificates' complexion. Its purpose is to circumvent withholding taxes on dividends, which some investors have to pay upfront and others do not. The tax-exempt borrower pays a rental fee equal to the dividend that the pension fund will now miss out on, minus a cut for itself and a clutch of banking middlemen. All sides are better off, bar the taxman.
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