A hard-to-borrow list is an inventory record used by brokerages to indicate what securities are difficult to borrow for short sale transactions. So the 500 shares Investor B sold short are half of the shares that Investor A purchased. Consider the following scenario: Investor A, with a $100,000 account balance, buys 1000 shares of stock XYZ, but at $200 per share, must do so on margin, incurring the equivalent of a $100,000 loan on the fly. In this scenario, Investor B has provided the cash collateral necessary to open the short position, so ultimately, it is the cash from Investor B that is being used to afford Investor A to take the margin position in XYZ.

In simple terms, a stock loan rebate is a payment to larger investors potentially available from a broker as the opposite side of the interest charged for borrowing on margin.

The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash or non-cash securities, of value equal to or greater than the loaned securities plus agreed-upon margin. Consider a scenario in which a hedge fund borrows 1 million shares of stock worth $20 per share for 30 days. The debit balance in a margin account is the amount owed by the customer to a broker for payment of money borrowed to purchase securities. Most shares held by brokerage firms on behalf of their clients are in “Street name,” which means that they are held in the name of the brokerage firm or other nominee rather than in the name of the client.

Securities lending is the act of loaning a stock, derivative or other security to an investor or firm. A rebate in a short-sale transaction is the portion of interest or dividends paid by the short-seller to the owner of the shares being sold short.

The stock loan rebate is a sweetener in securities lending.

This way the brokerage can loan the stock out to other investors.

Their portion of the net investment earning offsets this fee, so the borrower’s monthly fee for this period would be $46,940, calculated as follows:

The loan agreement stipulates that the collateral owed on this loan is 102%, so the hedge fund puts up $20,400,000. Based on this scenario, it seems only right that Investor B should be offered the interest payments from their short position. A retail trader or investor without a very large account will likely not be offered a rebate if they open a short trade, but a larger institutional customer might be offered such a rebate in order to attract their sizable accounts or order flow. By using Investopedia, you accept our These earnings are then split 60/40, meaning that $3,060 goes to the borrower, and the lender retains $2,040.

A margin account is a brokerage account in which the broker lends the customer cash to purchase assets. For tax purposes, stock borrow fees are miscellaneous other deductions for investors on Schedule A line 28, and Section 162 business expenses for … The stock loan fee amount depends on the difficulty of borrowing a stock – the more difficult it is to borrow, the higher the fee. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

If the trade is only has the duration of a few days, the charge is minimal and practically unnoticed. When trading on margin, gains and losses are magnified. Short sales involve selling borrowed shares that must eventually be repaid. This scenario is what drives brokers to offer a stock-loan rebate to some of their more sizable customers. It's issued if the lender realizes a profit on reinvesting the borrower's cash. In finance, securities lending or stock lending refers to the lending of securities by one party to another.. Interest can be paid monthly with the accrual option or at maturity as in a balloon style loan. A stock loan rebate is an amount of money paid by a stock lender to a borrower who has used cash as collateral for the loan. Assume a hedge fund borrows one million shares of a U.S. stock trading at $25.00, for a total borrowed amount of $25 million.

In fact they often do, but only for select customers, and not after substantial fees have been taken. While short selling can be lucrative if the trader’s view and timing are right, the costs involved with it can be quite substantial. Short selling occurs when an investor borrows a security, sells it on the open market, and expects to buy it back later for less money. The interest Investor A will pay is equivalent to a rate of 6% annually. The more difficult it is to borrow the stock, the higher the fee. Traders who buy stocks on margin know that when they buy shares of stocks on margin, their broker charges interest for cash used to purchase those shares.