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.

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 –

  • 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 borrower’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 –

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

The reinvestment earnings on the collateral are –

[($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.

  1. Collateral

    Collateral is property or other assets that a borrower offers ...
  2. Stock Loan Fee

    A stock loan fee, or borrow fee, is a fee charged by a brokerage ...
  3. Borrowing Base

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

    An advance rate is the maximum percentage of the value of a collateral ...
  5. Additional Collateral

    Additional assets put up as collateral by a borrower against ...
  6. Unsecured Loan

    An unsecured loan is a loan that is issued and supported only ...
Related Articles
  1. Insights

    Hidden Costs Of Product Rebates

    These cash incentives lure in consumers, who are often unable to collect on the deal.
  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. Small Business

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  5. Personal Finance

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  6. Retirement

    10 Ways to Borrow in Retirement

    Before you take money from your nest egg, consider these 10 other ways to borrow in retirement.
  7. 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.
  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. Personal Finance

    The 4 Worst Ways To Borrow Money

    While there are less risky places from which to borrow, there are also predatory lenders who can make your financial situation worse than it was to begin with.
  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.
  1. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  2. Asset-Based Lending Vs. Asset Financing

    Is there an actual difference between asset-based lending and asset financing? Read Answer >>
  3. What are the typical requirements to qualify for closed end credit?

    Learn what closed-end credit is, and the various requirements that borrowers must meet in order to obtain a closed-end credit ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center