- A process used in the settlement of mortgage-backed security to-be-announced (TBA) trades. This process requires that the sell side of a TBA trade inform the its buy-side counterpart of the exact securities that will be delivered into the trade by no later than 3 pm EST, and 48 hours prior to the established trade settlement date. In addition, each trade must be broken down into $1 million lots, and each lot can contain no more than three pools. A 0.01% variance is allowed on each $1 million lot. Most participants in the TBA market have software that helps them with mortgage allocations.
As the TBA market developed in the 1980s and 1990s, mortgage allocations were done manually or with limited software. The day 48 hours prior to major settlement days, known as "48 hour day", was a hectic and stressful day for TBA securities dealers and other market participants.
The allowed variance on TBA trades was initially much higher than the 0.01% it is today, and traders used this "allocation option" to make arbitrage profits. For example, if the current market price of a TBA trade was higher than the actual trade price, a trader could use the allowable variance to deliver a minimum amount into the trade, sell the difference at the current market price and realize the difference in prices on the dollar amount of the allowable variance as profit.
The exact opposite could be done if the trade price was higher than the current market price; the trader would deliver as much as allowed by the variance into the actual trade and purchase the difference in the current market at a lower price. The reduction in the allowed variance to 0.01% and the advent of sophisticated software has made mortgage allocation much less hectic than it once was.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
Subprime mortgage crisis — Part of a series on: Late 2000s financial crisis Major dimensions … Wikipedia
Allied Irish Banks — Not to be confused with Anglo Irish Bank. Allied Irish Banks p.l.c. Type Partially State owned Founded 1966 Headquarters … Wikipedia
Troubled Asset Relief Program — TARP redirects here. For other uses, see Tarp. This article is about the Treasury fund. For the legislative bill and subsequent law, see Public Law 110 343. For the legislative history and the events leading to the law, see Emergency Economic… … Wikipedia
Building society — Nationwide Building Society is the UK s and the world s largest building society A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services,… … Wikipedia
Low-Income Housing Tax Credit — The Low Income Housing Tax Credit (LIHTC; often pronounced lye tech ) is a tax credit created under the Tax Reform Act of 1986 (TRA86) that gives incentives for the utilization of private equity in the development of affordable housing aimed at… … Wikipedia
Economy of the People's Republic of China — Economies of Special Administrative Regions of Hong Kong and Macau are administered separately from the rest of People s Republic of China. Therefore, the information below pertains only to mainland China unless specified otherwise. For the… … Wikipedia
ECONOMIC AFFAIRS — THE PRE MANDATE (LATE OTTOMAN) PERIOD Geography and Borders In September 1923 a new political entity was formally recognized by the international community. Palestine, or Ereẓ Israel as Jews have continued to refer to it for 2,000 years,… … Encyclopedia of Judaism
Las Vegas metropolitan area — The Las Vegas metropolitan area includes the Las Vegas Valley, a 600 square mile (1600 km²) basin, and surrounding areas, that is part of Clark County in southern Nevada. The area contains the largest concentration of people in the state. The… … Wikipedia
Prior-appropriation water rights — Property law Part of … Wikipedia
Economy of Greece — Infobox Economy country = Greece width = caption = Greek one euro coin currency = 1 euro = 100 lepta (cents) year = Calendar year organs = EU, WTO, OECD and BSEC rank = 28th (2006) gdp = $324.616 billion (2007) growth = 3.4% (Q2 2008) per capita … Wikipedia