Toxic Waste

DEFINITION of 'Toxic Waste'

A slang term referring to securities that are unattractive due to certain underlying provisions or risks making them generally illiquid with poor pricing schemes and transparency.

BREAKING DOWN 'Toxic Waste'

Mainly used in reference to CMOs, toxic waste represents the small portion of these products that are byproducts created as a result of providing the majority of CMOs with minimal risk. In effect, this small portion of byproducts is used as outlets for transferring a substantial portion of the underlying risks involved in making the obligations and then marketed to investors.