2.3.1.4 Securities Haircuts
Haircuts are a discount that the SEC applies to the market value of securities held by a broker-dealer. Since the value of a security is constantly fluctuating, the SEC discounts its current market value to provide a cushion for a possible decrease in value at the time of a firm’s liquidation.
Haircut amounts vary depending on the type of security. Riskier securities tend to have higher haircuts. Here is an exhaustive list of securities haircuts.
Equity securities. For common stock, warrants, ADRs, and other equity securities, the haircut is 15% of the market value of the greater of the long or short positions. In addition, if the market value of the lesser of the long or short positions exceeds 25% of the market value of the greater of the long or