Mark To Market - MTM

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DEFINITION of 'Mark To Market - MTM'

1. A measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation.

2. The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.

3. When the net asset value (NAV) of a mutual fund is valued based on the most current market valuation.

INVESTOPEDIA EXPLAINS 'Mark To Market - MTM'

1. Problems can arise when the market-based measurement does not accurately reflect the underlying asset's true value. This can occur when a company is forced to calculate the selling price of these assets or liabilities during unfavorable or volatile times, such as a financial crisis. For example, if the liquidity is low or investors are fearful, the current selling price of a bank's assets could be much lower than the actual value. The result would be a lowered shareholders' equity.

This issue was seen during the financial crisis of 2008/09 where many securities held on banks' balance sheets could not be valued efficiently as the markets had disappeared from them. In April of 2009, however, the Financial Accounting Standards Board (FASB) voted on and approved new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation, starting in the first quarter of 2009.

2. This is done most often in futures accounts to make sure that margin requirements are being met. If the current market value causes the margin account to fall below its required level, the trader will be faced with a margin call.

3. Mutual funds are marked to market on a daily basis at the market close so that investors have an idea of the fund's NAV.

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    Mark to market accounting is used for substantially all investments or financial instruments held on a corporation's balance ... Read Full Answer >>
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    Mark to market accounting became a part of generally accepted accounting principles, or GAAP, in 1993 when Statement of Financial ... Read Full Answer >>
  3. Where did market to market (MTM) accounting come from?

    Mark to market accounting has been around in concept since the stock market began; however, it was not officially part of ... Read Full Answer >>
  4. Why is market to market (MTM) accounting considered controversial?

    Mark to market accounting has been an integral component of generally accepted accounting principles (GAAP) in the United ... Read Full Answer >>
  5. What does it mean when a derivative is marked to market?

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  7. What is a mutual fund's NAV?

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