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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
THIS WEEK: Sandra Kershaw, 23, went to Exhibition Haircutters in Barrow, Cumbria (01229-433217)
In one typical household, "the children were on an elaborate Rube Goldberg assembly line of child care, continually sent from one workstation' to the next." She is also unflinching in reporting how parents squeezed for time because of work end up "outsourcing" even the smallest of once-domestic chores (for example, haircutters who visit the day care center).
"And I was able to work my way up from brushing up hair on the salon floor, to running Company Haircutters, one of the most successful hairdressers in Belfast.
"One of the best haircutters in the city was called in to do the pubic hair," someone leaned over and whispered in my ear.
Other types of industries that would be subject to the tax are accountants, architects, lawyers, public relation professionals, dry cleaners, florists, cosmotologists, haircutters, even coin-operated laundries.
Many consumers will choose high-priced, "top-of-the-line" appliances, automobiles, athletic shoes, restaurants, brokerage houses, or haircutters because they believe high price and high quality to be strongly associated.
The other choice was the chain family haircutters, that tend to be generic.
Now, the two music stars and actors are appearing together as haircutters in Barbershop: The Next Cut.
Instead, she trained at Maroon Haircutters Salon in Cowbridge in the Vale of V Glamorgan, where the family said staff had been "supportive from the day of Amy's diagnosis" on her 21st birthday in August 2012.
Ontario Radio One, MCTV/CTV, Northern Ontario Business, Cambrian Foundation, Valhalla Inn, Bearskin Airlines, NYGARD.com, Algoma's Watertower Inn, The Flower Shed, The Flower Jug, First Choice Haircutters and Del Laboratories, Canadian Businesss and Ganong.
Pic unfolds during a 24-hour period in which Calvin (Ice Cube) will decide whether or not to sell the community landmark to a loan shark who wants to turn it into a strip joint, thereby throwing the barbershop's improbably large family of haircutters into the street.