Assignment Of Trade

AAA

DEFINITION of 'Assignment Of Trade'

A transaction used primarily in the mortgage-backed securities (MBS) to be announced (TBA) market, where the obligation to fulfill an existing forward trade is assigned by one of the counterparties to a third party. Assignments of trade are frequently used to avoid having to make delivery of securities into, or receive delivery of securities from, a TBA trade. The process has been formalized by the Securities Industry and Financial Markets Association (SIFMA).

INVESTOPEDIA EXPLAINS 'Assignment Of Trade'

Mortgage originators use assignments of trade to facilitate the pricing and purchase of whole loans by the third party to which the TBA trade is assigned, with the agreement that the third party will then make delivery of an MBS into the original TBA trade, which was taken out by the mortgage originator as a hedge.

In other words, an assignment of trade allows a mortgage originator to unwind its hedge position by assigning it to the third party and simultaneously agreeing to sell an equal amount of loans to that third party. The price at which the whole loans are sold to the third party is established by price of the trade being assigned.

RELATED TERMS
  1. Settlement Price

    In derivatives markets, the price used for determining profit ...
  2. To Be Announced - TBA

    A term used to describe a forward mortgage-backed securities ...
  3. Settlement Risk

    The risk that one party will fail to deliver the terms of a contract ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  6. Assignment Of Proceeds

    A document transferring all or part of the proceeds from a letter ...
RELATED FAQS
  1. What is a Ginnie Mae security?

    A Ginnie Mae, or Government National Mortgage Association security, functions similarly to the process of lending someone ... Read Full Answer >>
  2. What is the difference between compounding interest and simple interest?

    Interest is the cost of borrowing money, where the borrower pays a fee to the owner for using the owner's money. The interest ... Read Full Answer >>
  3. What are the primary differences between a closed end investment and an open end ...

    The primary differences between closed-end funds and open-end funds lie in how they are structured and how they are bought ... Read Full Answer >>
  4. What is the relationship between modified duration and interest rates?

    Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >>
  5. What do mortgage lenders use the securitization food chain?

    The phrase "securitization food chain" was made popular by director Chris Ferguson in "Inside Job," a film about the 2007-2 ... Read Full Answer >>
  6. What are the most common leveraged ETFs that track the drugs sector?

    The most common leveraged exchange-traded funds (ETFs) that track the pharmaceutical industry are the two offered by Proshares: ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  3. Mutual Funds & ETFs

    Top 4 High-Yielding Preferred Stock ETFs

    ETFs offer diversification, a clear advantage. Preferred stock ETFs offer even more.
  4. Investing Basics

    What is a "Coupon"?

    In the financial world, “coupon” represents the interest rate on a bond.
  5. Forex

    Best Ways To Protect Your Bitcoins

    Just like any other valuable asset, its important to keep your bitcoins safe. Here are few ways to protect bitcoins from threats like computer failures, loss of passwords, and hackers.
  6. Stock Analysis

    Is it Time to Buy Floating Rate Bonds?

    The Fed’s awaited interest rate hike could finally be at hand. Are floating rate bonds the way to go?
  7. Investing Basics

    Treasury Inflation-Protected Securities (TIPS)

    Treasury inflation-protected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index.
  8. Forex

    10 Cities Leading Bitcoin Adoption

    An overview of the global cities leading the way in using the virtual currency Bitcoin.
  9. Retirement

    Facing Retirement? Look Beyond 100% Bonds

    Retiring doesn't mean putting all your money in bonds. There are two things to consider when it comes to be invested in bonds: growth and inflation.
  10. Mutual Funds & ETFs

    Is the PowerShares (PFEM) ETF a Good Bet Now?

    What you need to know if you are considering trading PowerShares Fundamental Emerging Markets Local Debt ETF.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center