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 ?
26 million free haircut certificates valued at nearly $25.
Now some city barbers are expecting a repeat rush after his latest haircut, a shorter version of the famous punk Mohican of the late 70s and 80s.
And, we are grateful to our clients who make donations during their haircut service.
The Council of Ministers, meanwhile, would meet again on Monday morning, it was announced, giving rise to speculation that negotiations were under way for amending the haircut conditions.
Merkel said the euro zone crisis had built up over many years and could not be easily solved by a haircut or euro bonds.
Haircuts may also be donated through July 31 by accessing the "Share a Haircut" Facebook app.
With me giving out free haircuts, it gives me a chance to say, 'Hey, you need to pick up a book and read it and we can help you if you need it.
Mr Mavrides claims (now) that he was a supporter of the haircut on uninsured deposits: "Incidentally, in the period before the second Eurogroup and when the haircut became inevitable I suggested to the President to exclude guaranteed deposits and do a horizontal haircut, so on average around 16% horizontal haircut would have been sufficient.
I didn't even consider that his behaviours and meltdowns during a haircut would be associated with his autism diagnosis, I just put it down him being defiant but after diagnosis I started to wonder and consider the reasons why he hated having his haircut so much.
The Share-a-Haircut has reached more than 900,000 children, and more than 100,000 homeless people and victims of domestic abuse through haircut certificate donations.
I've been told my new haircut takes years ome, so I'm pleased about that.
The Neymar haircut is ready after about three hours.