The term mark-to-market refers to an accounting process that records the value of certain assets and liabilities at their current market price, not historical cost. Mark-to-market accounting rules are typically applied to actively-traded assets such as stocks, bonds and similar securities.
Generally Accepted Accounting Principles require companies to record certain assets at their fair market value. The practice of recording these values is referred to as mark-to-market. The process was developed so assets appearing on a company's balance sheet reflected their true value, which can materially differ from historical cost.
Guidance is provided in Statements of Financial Accounting Standards No. 157, Fair Value Measurements, which describes both the fair value hierarchy as well as the disclosure requirements for assets and liabilities not recorded at historical cost. The mark-to-market process applies to Level 1 assets and liabilities. For example, Level 1 assets are those actively traded on a public market such as stocks and futures contracts.
The mark-to-market process was subject to criticism following the financial crisis of 2008 / 2009. At that time, banks were forced to reduce the value of securities appearing on their balance sheet, thereby contributing to public panic and fiscal instability. In early 2009, the Financial Accounting Standards Board (FASB) would approve guidelines that allowed for values to be based on an orderly market, not a forced liquidation.