Luminova
2024-05-09 15:05:46
From Investopedia
Why Are Stock Loan Rebates Offered?
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. The interest Investor A will pay is equivalent to a rate of 6% annually.
Next, consider that Investor B happened to want to open a short position in XYZ of 500 shares at the same time. So the 500 shares Investor B sold short are half of the shares that Investor A purchased. 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.
Based on this scenario, it seems only right that Investor B should be offered the interest payments from their short position. This scenario is what drives brokers to offer a stock-loan rebate to some of their more sizable customers. In fact, they often do, but only for select customers, and not after substantial fees have been taken.
From this interpretation a negative rebate would mean the interest being charged investor A for going long on stock XYZ is substantially less than the interest being charged investor B going sh