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 ?
"My parents were not aware of the fact that we had gotten a haircut from the school.
"Haircuts are just another financial pressure on parents at this time of year, especially when there's a few children in the one family.
Studio Shed, which makes high-end backyard structures, brought in BuzzBox for a holiday party last year and treated the 25 employees to free haircuts. "We thought it would be unique and cool," says Mike Koenig, Studio Shed's founder and general manager.
"Haircuts should be a fun experience for every child and a stress-free trip for parents,"said Neetu Bhandari, who owns the haircuttery with her husband Arvind.
She cut off her very long hair, to give herself a haircut that matched Priscilla's.
Josiah's haircut hide traction according to Until his hair grew back to a satisfactory length, the five-year-old lost his playtimes but Danica has hit out at the "harsh" treatment of her son,claiming that the policy was "culturally biased" and "dictating a hair style that's not suitable" for her son's Afro-Caribbean locks - an accusation the school denies.
Some fans expressed how good the tot looked with his new hair, with one amazed how Alas behaved during the whole haircut process.
Every day at least 4-5 clients asked to do mayor's haircut. But only a professional with experience can make the same haircut.
"Since most of us probably won't remember the details of our first haircut, we decided to document this ceremonial' activity for our little Letizia," Zia's dad Dingdong Dantes on Monday wrote in an Instagram post.
"If we can help with such a little thing such as them not having to spend [pounds sterling]10 on a haircut it can make such a big difference in someone's current state of affairs."
They must go for a proper haircut every two months.