Short sellers most likely:
- pay a short rebate to security lenders.
- receive cash collateral from security lenders.
- make payments-in-lieu of dividends to security lenders.
C is correct because "the short sellers will pay the long sellers [security lenders] all dividends or interest that they otherwise would have received had they not lent their securities. These payments are called payments-in-lieu of dividends (or of interest)."
A is incorrect because security lenders will pay a short rebate rate to short sellers. "They [security lenders] invest the collateral in short-term securities, and they rebate the interest to the short sellers at rates called short rebate rates."
B is incorrect because short seller will deposit cash collateral to security lenders. "To secure the security loans, lenders require that the short seller leave the proceeds of the short sale on deposit with them as collateral [cash collateral] for the stock loan."
