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. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  5. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  6. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
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. Why is term structure theory of importance to economists?

    The term structure theory, also known as the term structure of interest rates, is important to economists because it lets ... Read Full Answer >>
  3. What are the top high yield bond ETFs?

    Three of the most popular high-yield bond exchange-traded funds, or ETFs, are the Peritus High Yield ETF (HYLD), the SPDR ... Read Full Answer >>
  4. Why has the market for high yield bonds grown so much?

    Reasons for the rapid growth of the high-yield bond market include the creation of new types of issues, a prolonged period ... Read Full Answer >>
  5. How can electricity be traded as a commodity by an individual investor?

    Electricity can be traded in the financial marketplace like any other commodity. Electricity futures trading offers an alternative ... Read Full Answer >>
  6. Where can I find year-to-date (YTD) returns for benchmarks?

    Benchmarks are securities or groups of securities against which investment performance is analyzed. Examples of popular equity ... 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. Savings

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  4. Economics

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  5. Professionals

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  6. Stock Analysis

    Playing Rising Rates with Ultra-Short Term Bonds

    With rising rates likely, investors may want to consider adding a dose of ultra-short bonds to their portfolios. Here are some ETFs to consider.
  7. Professionals

    Why Investors Are Bailing on Bond ETFs

    Investors are fleeing bond ETFs. Should you follow the herd? Hint: It depends on the type of bond.
  8. Professionals

    Is a Bond Market Selloff Coming?

    A big investment management company is concerned about bond market conditions and allocating more capital to cash. Should you follow?
  9. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  10. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!