Earnings on collateral in a securities lending transaction paid by a lender to a borrower are referred to as:

In a securities lending transaction, the borrower uses financial securities that are owned by the lender, and in return, the lender typically receives some form of compensation for that transaction. The earnings on the collateral provided by the borrower—often in the form of cash or equivalent securities—are commonly referred to as rebates.

Rebates are necessary in this context because the lender does not sell their securities; rather, they maintain ownership while allowing the borrower to use them. The borrower, while using the borrowed securities, generates income (for example, from short-selling). To incentivize the lender to engage in the transaction, the borrower pays a portion of this income back to the lender, which is termed a rebate. This arrangement serves as a means of compensating the lender for the temporary transfer of ownership rights.

Understanding this concept is crucial for grasping how securities lending and collateral management operate, particularly in negotiations and financial agreements between parties involved in securities lending.