The percentages that are deducted from the market value of securities, but not of exempted securities, in long or short positions of the inventory or trading accounts held or maintained by a broker-dealer. These haircuts provide a margin of safety as well as a brake on over-extension by a broker-dealer (preventing accumulation of securities for their own benefit). For example, if a broker-dealer invested 50,000 currency units (CU) from its own funds (for purchasing securities for its own account), the dealer has to maintain the net capital position by injecting more capital (e.g., 15,000 CU).
The deductible amounts (haircuts) depend on the applicable percentages, which vary from zero for exempted securities to as high as 30% or so, for other categories, taking into consideration credit quality, convertibility, time to maturity, interest rate modes (fixed, floating, discount, …), etc.
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