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Most series 24 test takers will see an application style question on this very subject. A haircut is a deduction taken from the market value of securities in inventory for the purpose of determining net capital. A haircut is taken to allow for the volatility in securities prices and to reflect the fact that positions held in inventory may be off set at prices that are somewhat different from current market prices. Haircut deductions are 15 percent of the net long or short positions for securities traded on an exchange and regulation T OTC marginable securities and OTC securities with 3 or more market makers excluding the market maker doing the capital computation. Haircut deductions on other stocks with a limited market (one or two independent market makers) are 40 percent on both the long and short positions.Unregistered securities under the Securities Act of 1933 or those with no ready market receive a 100 percent haircut (no value given in computation of fi rm’s net capital). An additional haircut of 15 percent is applied to proprietary positions of a broker dealer on the market value of a stock in excess of 10 percent of its tentative net capital if the concentration limit is held for more than 11 business days. Th is is known as undue concentration. Tentative net capital is the broker dealer’s net capital prior to haircut deductions. The additional 15 percent haircut is applied only to the amount of securities in excess of 10 percent of the tentative net capital.