What Is to Be Announced (TBA)?

To be announced, or TBA in bond trading, is a term that describes 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 fact that the actual mortgage-backed security that will be delivered to fulfill a TBA trade is not designated at the time the trade is made. These securities are announced 48 hours prior to the established trade settlement date.

TBA may also be used to denote a pending corporate announcement or other pieces of information that is yet "to be determined" (TBD).

Understanding TBA

A TBA serves as a contract to purchase or sell an MBS on a specific date, but it does not include information regarding the pool number, number of pools, or the exact amount that will be included in the transaction. An MBS is a bond that is secured, or backed, by mortgage loans. Loans with similar traits are grouped together to form a pool, and that pool is subsequently sold to stand as collateral for the associated MBS.

Interest and principal payments are issued to investors at a rate based on the principal and interest payments made by the borrowers of the associated mortgages. Investors receive interest payments on a monthly basis instead of semiannually.

This is because the TBA market assumes MBS pools to be relatively interchangeable. The TBA process increases the overall liquidity of the MBS market by taking thousands of different MBSs with different characteristics and trading them through a handful of contracts. The buyers and sellers of TBA trades agree 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 each month. Trade counterparties are required to exchange pool information by 3 p.m. (EST), 48 hours prior to the established settlement date. Trades are allocated in $1 million lots.

Special Considerations: TBA Trade Risks

Due to the forward-settling nature of the investment, the risk of counterparty default is present during the period of time between the execution of the trade and the actual settlement. The risk associated with this form of default is that, especially in highly volatile markets, the non-defaulting party will be unable to secure a deal with similar terms once the defaulting party’s intentions are known. Risk may be mitigated through the assignment of collateral to the transaction, though not all firms have immediate access to collateral management services.

In January 2014, when average daily trading volumes in the TBA market were reaching over $186 billion, the Financial Industry Regulatory Authority (FINRA) set margin requirements designed to assist in lowering risks for TBA transactions with longer settlement dates. This rule only applies to specific individuals or institutions and is not deemed necessary for transactions with short settlement periods.

Other Uses of TBA

"To be announced" can refer to other circumstances that do not involve bond markets. In these cases, TBA is most often used interchangeably with TBD, or "to be determined." Whenever there is upcoming information scheduled for release, but the exact time or date has not been set, it may appear as "TBA". For instance, a company may set its annual shareholders' meeting for sometime in the Spring of the following year, with the exact date and location TBA until it has been finalized. Similarly, "TBA" can be used as a placeholder for dates or other information yet to be determined for purposes of shipping and logistics, pending news headlines, or personnel changes. For instance, a company may wish to hire a new manager, with the successful candidate TBA after negotiations have been concluded.

Frequently Asked Questions

Does TBA mean something different in finance?

In the world of bond trading, TBA is used in particular to describe a situation when certain mortgage-backed securities are traded but the details of the securities are not announced until a later point in time. Buyers and sellers of TBA trades agree on a few necessary parameters such as issuer maturity, coupon, price, par amount, and settlement date. The specific securities involved in the trade are announced 48 hours before the settlement.

What is the difference between TBA and TBD?

Outside of the MBS market, 'to be announced' and 'to be determined' are often used interchangeably and mean the same thing. More technically, TBA (i.e., a pending announcement) should occur after something has already been determined, so that it will always follow a TBD status. For instance, a company may ponder whether to acquire a company—rendering it TBD. Once that decision has been approved, the status may move to TBA until it has been officially announced to shareholders.

When are MBS trades described as TBA?

A to-be-announced (TBA) trade is effectively a contract to buy or sell mortgage-backed securities (MBS) on a specific date. It does not include information regarding the pool number, the number of pools, or the exact amount involved in the transaction, which means the underlying mortgages are not known to the parties. This exclusion of data is due to the TBA market assuming that MBS pools are more or less interchangeable. This interchangeability helps facilitate trading and liquidity.