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 ?
Liz Nolan, community organiser at the centre, said: "We had about a dozen come in for a haircut. For the girls it was just a trim but the boys all seemed to want the same haircut that's long at the top and swept to the side.
A haircut costs about $20, usually paid for by the employee.
"Many times, kids with special needs cannot sit still for a haircut and parents struggle to find a patient stylist to trim their child's hair; a busy salon can make them feel overstimulated and anxious, and they can be frightened by the noises scissors make.
She added that such 'strange haircuts' make these children look irresponsible and mostly portray them as ex-convicts in the name of fashion.
"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."
Meanwhile, lender of stressed Prayagraj Power Generation Company Limited (PPGCL) struck a deal with Tata Power, taking 50% haircut.
HOMELESS people in a Welsh city can receive a haircut free of charge, as a group of barbershops come together for a one-off event.
'However, if a customer needs more stylish haircuts, we charge $5 and up, depending on the child's age,' Rachna says.
In addition transactions from Spain, Italy, Portugal and the Netherlands that could benefit from lower commercial collateral haircuts have ratings only on the senior notes, which are capped by sovereign risk or are already rated 'AAAsf'.
Dr Zandile Spengane of the University of Cape Town said although HIV was not detected in the small study, the risk of transmission should be quantified.CLEAN-SHAVEA history of haircut-associated bleeding as a result of clean-shave haircuts was an unexpected finding.
After the supreme court ruled in June 2013 it had no jurisdiction over the more than 3,000 appeals lodged by the depositors of former Laiki Bank and BoC, against the haircut, complainants sought other recourse.