1. In a short-sale transaction, the portion of interest or dividends earned by the owner (lender) of shares that are paid to the short seller (borrower) of the shares. 2. In an options transaction, the amount paid to the holder of the option if the option expires worthless. Taobiz explains Rebate 1. The lender and borrower usually negotiate the rate at which the short seller will be compensated. 2. The rebate is pre-negotiated and is usually a portion of the premium paid by the option holder.