Haircut


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Haircut

The margin or difference between the actual market value of a security and the value assessed by the lending side of a transaction.

Haircut

1. The reduction of value to securities used as collateral in a margin loan. That is, when one places securities as collateral, the brokerage making the loan treats them as being worth less than they actually are, so as to give itself a cushion in case its market price decreases.

2. The bid-ask spread at which a market maker buys and sells securities. It is called a haircut because it is a thin spread.

haircut

A deduction in the market value of securities being held by brokerage and investment banking firms as part of net worth for calculating their net capital. The size of a haircut varies with the particular type of security held.

Haircut.

A haircut, in the financial industry, is a percentage discount that's applied informally to the market value of a stock or the face value of a bond in an attempt to account for the risk of loss that the investment poses.

So, for example, a stock with a market value of $30 may get a haircut of 20%, to $24, when an analyst or money manager tries to anticipate what is likely to happen to the price.

Similarly, when a broker-dealer calculates its net capital to meet the 15:1 ratio of debt to liquid capital permissible under Securities and Exchange Commission (SEC) rules, it typically gives volatile securities in its portfolio a haircut to reduce the potential for being in violation.

The only securities that consistently escape a haircut are US government bonds because they are considered free of default risk.

References in periodicals archive ?
Ali has been into the profession for 15 years and was inspired by Chinese hairdresser Zedong Wang who set a Guinness world record in 2007 for using ten scissors together while giving a haircut.
has a very and code Charlesworth, governors "It is at the discretion of the Head Teacher to ask parents to change the haircut if it is thought inappropriate.
She added the barbers had insulted her parenting skills by saying her child was fidgeting and moving around too much while he sat in the chair for the haircut.
Kaizen offers a snappy solution with a reasonably priced haircut that won't take too much of your precious time,' Gabas says.
Update the haircuts for marketable and non-marketable assets; Introduce graduated haircuts for eligible asset-backed securities (ABS) based on their Weighted Average Life (WAL) as calculated from expected cash flows.
Surprisingly, the timing of the haircut looks suspect to many private bankers.
To celebrate the opening of Dinkum Hair, Westchester's newest hair salon and barbershop, in the Buchanan Circle, all haircuts for men, women and kids are just $10.
In an effort to encourage local children to read, barber Courtney Holmes of Dubuque, Iowa, gave out free haircuts to children on August 8.
Initially I dismissed it whilst Mum and I would wrestle with Charlie to give him a haircut that he so desperately needed.
The Share-a-Haircut program is in its 15th year and has reached more than 900,000 children, and more than 100,000 homeless people and victims of domestic abuse through haircut certificate donations, valued at more than $13.
I've been told my new haircut takes years ome, so I'm pleased about that.