Collateral Margin/ Haircut Definitions and Calculations
A HAIRCUT should be applied where securities are used as collateral and this haircut is applied to the non- cash collateral, reducing the value by the amount of the haircut. A Margin should be used when cash collateral is used to collateralise the loan. In this case, the loan is increased in value by the amount of the margin. A MARGIN or Haircut should be based on the calculated risk of loss. The higher the risk to the lending client, the higher the margin/haircut applied. The margin/haircut applied will be based on the criteria outlined by the client when joining the program. This will typically depend on the credit rating of the collateral pledged compared to the rating of the securities being loaned to the broker. (IBP-162 AGREED IN 2017)
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