Basket Transactions Law and Legal Definition

The term basket transactions basically include two types of transactions. The first type include bids or purchases made in the ordinary course of business in connection with a “basket” of 20 or more securities, as long as a covered security does not comprise more than five percent of the basket's value. The term also signifies adjustments made to the basket in the ordinary course of business because of a change in the composition of a standardized index. These types of transactions are usually used by institutional investors or program traders to invest large amounts of money into a particular portfolio or index.