Assignment Of Trade


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).

BREAKING DOWN '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.

  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Settlement Risk

    The risk that one party will fail to deliver the terms of a contract ...
  3. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  4. To Be Announced - TBA

    A term used to describe a forward mortgage-backed securities ...
  5. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  6. Settlement Price

    In derivatives markets, the price used for determining profit ...
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