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 ?
Major hair clipper/ trimmer suppliers are addressing these trends with home haircutting kits designed to be practical, affordable and fun.
Andis has an extensive array of hair clippers and trimmers, from cord/cordless and basic units to feature-packed home haircutting kits.
They found haircutting equipment, hair dye and magazines, hotel staffers said.
Sport Clips, the haircutting franchise where "Guys Win", had record-setting 158% growth over three years.
Whoever did this haircutting was apparently not well-experienced or skillful, and the product reflected that.
The haircutting by the three women occurred Wednesday night.
Jim Petrillo, President of Aveda Institute says, "Being the Julliard of cosmetology schools, our students will learn the latest trends of haircutting, hair color, nails and skincare taught by our globally trained Aveda educators.
Hair Max stores will stand out as a discount service oriented store specializing in haircutting and styling -- great haircuts at great prices.
Beckerman began his career with Vidal Sassoon, where he introduced the "geometric" haircut to American hairdressers and opened the first Vidal Sassoon haircutting academy in the United States.