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Haircut: reducing the level of something that would otherwise be available for a particular purpose. Most typically, in a regulatory context, the fact that booking a particular transaction means that the organisation has to make a 100% capital provision against it effectively means that it has taken a capital haircut because there is then less capital available to cover other business on its books.

Hedge Fund: a dynamic type of investment fund, very actively managed. Involved in practices such as short selling, where the fund borrows something and sells it in the hopes that they can buy it more cheaply when they have to return what was “borrowed”. If it concerns shares borrowed from a broker, the fund has ways of making money whether shares go up (long selling) or down (short selling) in value.

Hedging: taking a position in one market to offset exposure to adverse risk in another. This often takes the form of entering into a contract to buy or sell the product concerned at a fixed price some time in the future, doing the opposite of the commitment which needs hedging and thus eliminating the volatility of that commodity’s price.

High Yield Debt: bonds with a credit rating below investment grade. Also known as speculative grade bonds, they attract a higher yield for the investor because the risks are higher than for investment grade. Pejoratively known as “junk bonds”. See INTM586150.

Hybrid Accounting Method: an accounting method using a combination of accounting methods for different income items, for example and accruals basis for purchases and sales but a cash basis for other income.

Hybrid Entity: a hybrid entity is recognised as a person under the tax code of any territory, while its income or expenses are also treated, under the same or a different tax code, as the income or expenses of one or more other persons. An example of a hybrid entity is an entity taxed as a corporation in one country but disregarded in another (US check the box regulations).

Hybrid Financial Instrument: a hybrid instrument has characteristics of both debt and equity e.g. debt which is convertible into equity. For arbitrage purposes, it is either an instrument that can change character, or one that is subject to contrasting treatment in different territories e.g. an instrument treated as a loan relationship in the UK but as equity elsewhere.