## DEFINITION of 'Stock Loan Rebate'

The amount paid by a stock lender to a borrower who has put up cash collateral to borrow a stock. The stock loan rebate comes from the reinvestment of the cash collateral by the stock lender, and offsets part of the stock loan fee. The amount of the rebate, along with other parameters of the stock loan, is decided beforehand through a Securities Lending Agreement between the lender and borrower. A stock loan rebate is only paid to the stock borrower in the case of cash collateral, otherwise a fee is charged for non-cash collateral such as Treasuries. Stock loan rebates are typically only offered to large clients and are not available for small retail accounts.

Next Up

## BREAKING DOWN 'Stock Loan Rebate'

For example, assume a hedge fund borrows 1 million shares of a U.S. stock trading at \$20, for a total borrowed amount of \$20 million. The parameters of the stock loan are as follows â€“

• Collateral amount is 102%, and is paid by the borrower in cash
• The stock loan is made for a period of 30 days
• The stock loan fee is 3%
• The stock loan rebate is 0.70%
• The reinvestment rate is 1.00%
• Net investment earnings (less the borrowerâ€™s rebate) are split 60:40 between the borrower and the lender.
• 360-day year is assumed for the purpose of calculation.

In this case, the stock loan rebate for the 30-day period is calculated as â€“

[(\$20 million x 102% x 0.70%)] x (30/360) = \$11,900

The reinvestment earnings on the collateral are â€“

[(\$20 million x 102% x 1.00%)] x (30/360) = \$17,000

The net investment earnings are therefore = \$17,000 - \$11,900 = \$5,100

This net amount is split between the borrower and lender as per the terms of the agreement (a 60:40 split) as \$3,060 and \$2,040 respectively.

Note that the borrower also had to pay a stock loan of 3% annually, which works out to \$50,000 for a 30-day period. The net amount (reinvestment earnings on collateral less stock loan rebate) of \$3,060 can be used to offset the stock loan fee, so that the overall amount paid by the stock borrower is \$46,940.

RELATED TERMS
1. ### Stock Loan Fee

A fee charged by a brokerage firm to a client for borrowing shares. ...
2. ### Interest Cost

The cumulative sum of the amount of interest paid on a loan by ...
3. ### Borrowing Base

The amount of money a lender will loan to a company based on ...

The maximum percentage of the value of a collateral that a lender ...

Additional assets put up as collateral by a borrower against ...
6. ### Lender

Someone who makes funds available to another with the expectation ...
Related Articles
1. Investing

### What are the Five C's of Credit?

The five Câ€™s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five Câ€™s are Character, Capacity, Capital, Collateral and Conditions. ...
2. Personal Finance

### How Mail-In Rebates Rip You Off

These common strategies often leave consumers holding the bill.
3. Investing

### How to Get a Rebate and Save on Buying a Home

When you're looking for a new home, you can save thousands if you find a real estate broker willing to offer a rebate.
4. Investing

### How Does Securities Lending Work?

Securities lending is the act of loaning a stock or other security to an investor or firm.
5. Personal Finance

### Explaining Non-Recourse Debt

Non-recourse debt limits a lender as to what it can and cannot pursue for collateral.
6. Personal Finance

### How To Apply For a Personal Loan

Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
7. Investing

### Commercial Real Estate Loans

Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
8. Personal Finance

### Personal Loans: Consider These Alternative Lenders

Looking for an alternative source of financing for a personal loan? Take a look at these companies.
9. Insights

### An Introduction to Government Loans

Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
10. Personal Finance

### Home Improvement Loans: What Are Your Best Options?

If you plan on taking out a home improvement loan, you should know what your options are and which ones might be best for your situation.
RELATED FAQS
1. ### What is the difference between asset-based lending and asset financing?

In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Answer >>
2. ### What are the pros and cons of life insurance policy loans?

Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
3. ### When did people first start using collateral to secure loans?

Read about the history of lending and collateral, including a time when an entire nation was pledged as collateral for all ... Read Answer >>
Hot Definitions
1. ### Interest Expense

The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
2. ### Call Option

An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
3. ### Pro-Rata

Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
4. ### Private Placement

The sale of securities to a relatively small number of select investors as a way of raising capital.
5. ### AAA

The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
6. ### Backward Integration

A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...