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| Mark-to-Market |
In general terms, mark-to-market is the widespread practice of revaluing a financial security to reflect the current values of the relevant market variables, ensuring price transparency.
In an exchange, mark-to-market is the procedure of documenting the price of a security, portfolio, or account on a daily basis in order to compute the gains and losses. This confirms that margin requirement is fulfilled, that is, the amount of money an investor is required to deposit in a margin account prior to purchasing securities on margin or selling short. See also Dufie (1989) and Hull (2005) on this topic.
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Marking-to-market is a crucial part of the portfolio margining system, one of the most important financial safeguards, ensuring stability and integrity to the financial system, aimed to avoid, or at least limit counterparty risk.
