Other factors that influence rebate rates are the duration and re-pricing frequency of the loan. Open loans are marked-to-market daily to allow rates to move as the funding rate moves, or as the supply and demand of the security changes.
Term loans rates are fixed at the beginning of the loan and are established for a set period
of time. Rebate rates may be positive or negative, indicating which participant is responsible for paying interest on the cash collateral outstanding.
Lender → Custodian → Prime Broker → Borrower
Borrower → Rime Broker → Custodian → Lender
(Shares / Collateral / Rebate)
Rebate (+ ve) paid to borrower
Rebate (- ve) paid to lender
Custodian → A financial institution that has the legal responsibility for a customer’s securities. This implies management as well as safekeeping.