To Be Announced (TBA)

What Is to Be Announced (TBA)?

To be announced, or TBA in bond trading, is a term that portrays forward-settling of mortgage-backed securities (MBS) trades. Pass-through securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae trade in the TBA market, and the term TBA is derived from the way that the real mortgage-backed security that will be delivered to satisfy a TBA trade isn't designated at the time the trade is made. These securities are announced 48 hours prior to the laid out trade settlement date.

TBA may likewise be utilized to signify a pending corporate announcement or different snippets of information that is yet "to be determined" (TBD).

Grasping TBA

A TBA fills in as a contract to purchase or sell a MBS on a specific date, however it does exclude information in regards to the pool number, number of pools, or the specific amount that will be remembered for the transaction. A MBS is a bond that is secured, or backed, by mortgage loans. Loans with comparative traits are gathered to form a pool, and that pool is in this manner sold to remain as collateral for the associated MBS.

Interest and principal payments are issued to investors at a rate in view of the principal and interest payments made by the borrowers of the associated mortgages. Investors receive interest payments consistently rather than semiannually.

The settlement procedures of MBS-TBA trades are laid out by the Bond Market Association.

This is on the grounds that the TBA market expects MBS pools to be moderately tradable. The TBA interaction expands the overall liquidity of the MBS market by taking a great many different MBSs with various qualities and trading them through a modest bunch of contracts. The buyers and sellers of TBA trades settle on these parameters: issuer, maturity, coupon, price, par amount, and settlement date.

Each type of agency pass-through security is given a trade settlement date for every month. Trade counterparties are required to exchange pool information by 3 p.m. (EST), 48 hours prior to the laid out settlement date. Trades are allocated in $1 million parts.

The TBA market is the second most traded secondary market after the U.S. Treasury market.

Special Considerations: TBA Trade Risks

Due to the forward-settling nature of the investment, the risk of counterparty default is available during the period of time between the execution of the trade and the genuine settlement. The risk associated with this form of default is that, especially in exceptionally unstable markets, the non-defaulting party will not be able to secure a deal with comparative terms once the defaulting party's goals are known. Risk might be moderated through the assignment of collateral to the transaction, however not all organizations have immediate access to collateral management services.

In January 2014, when average daily trading volumes in the TBA market were coming to more than $186 billion, the Financial Industry Regulatory Authority (FINRA) set margin prerequisites intended to help with bringing down risks for TBA transactions with longer settlement dates. This rule just applies to specific people or institutions and isn't considered significant for transactions with short settlement periods.

Different Uses of TBA

"To be announced" can allude to different conditions that don't include bond markets. In these cases, TBA is most frequently utilized conversely with TBD, or "to be determined." Whenever there is impending information scheduled for release, yet the specific time or date has not been set, it might show up as "TBA". For example, a company might set its annual shareholders' meeting for at some point in the Spring of the following year, with the specific date and location TBA until it has been concluded.

Likewise, "TBA" can be utilized as a placeholder for dates or other information yet to be determined for reasons for transportation and logistics, pending news titles, or staff changes. For example, a company might wish to hire another manager, with the effective candidate TBA after discussions have been closed.

Oftentimes Asked Questions

Does TBA mean something else in finance?

In the world of bond trading, TBA is utilized in particular to portray a situation when certain mortgage-backed securities are traded yet the subtleties of the securities are not announced until a later point in time. Buyers and sellers of TBA trades settle on a couple of important parameters, for example, issuer maturity, coupon, price, par amount, and settlement date. The specific securities engaged with the trade are announced 48 hours before the settlement.

What is the difference among TBA and TBD?

Outside of the MBS market, 'to be announced' and 'to be determined' are frequently utilized reciprocally and mean exactly the same thing. All the more technically, TBA (i.e., a pending announcement) ought to happen after something has previously been determined, with the goal that it will continuously follow a TBD status. For example, a company might consider whether to obtain a company — delivering it TBD. When that decision has been approved, the status might move to TBA until it has been formally announced to shareholders.

When are MBS trades portrayed as TBA?

A to-be-announced (TBA) trade is successfully a contract to buy or sell mortgage-backed securities (MBS) on a specific date. It does exclude information in regards to the pool number, the number of pools, or the specific amount engaged with the transaction, and that means the underlying mortgages are not known to the parties. This exclusion of data is due to the TBA market accepting that MBS pools are pretty much exchangeable. This compatibility works with trading and liquidity.

Features

• Due to their tendency, TBAs can some of the time carry considerate risk.
• TBA is at times utilized exchangeable with TBD ("to be determined")
• TBA is utilized to better work with trades in the MBS market and give liquidity, permitting mortgage lenders to hedge their origination pipelines.
• TBA is a term taken from the selling of mortgage-backed securities, where the subtleties were not known until some other time.
• A TBA trade does exclude its subtleties, so all best passed on to experts comprehend the subtleties of TBA trades.