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Explaining settlement fails

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Abstract

The Federal Reserve now makes available current and historical data on trades in U.S. Treasury and other securities that fail to settle as scheduled. An analysis of the data reveals substantial variation in the frequency of fails over the 1990-2004 period. It also suggests that surges in fails sometimes result from operational disruptions, but often reflect market participants' insufficient incentive to avoid failing.

Suggested Citation

  • Michael J. Fleming & Kenneth D. Garbade, 2005. "Explaining settlement fails," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Sep).
    • Handle: RePEc:fip:fednci:y:2005:i:sep:n:v.11no.9
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    Cited by:

    1. Jonathan Chiu & Thorsten V Koeppl, 2019. "Blockchain-Based Settlement for Asset Trading," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1716-1753.
    2. Ilhyock Shim & Goetz Von Peter, 2007. "Distress Selling and Asset Market Feedback," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 16(5), pages 243-291, December.
    3. Fujiki, Hiroshi & Green, Edward J. & Yamazaki, Akira, 2008. "Incentive efficient risk sharing in a settlement mechanism," Journal of Economic Theory, Elsevier, vol. 142(1), pages 178-195, September.
    4. Fabienne Schneider, 2024. "On-the-run Premia, Settlement Fails, and Central Bank Access," Working Papers 24.05, Swiss National Bank, Study Center Gerzensee.
    5. Cyril Monnet & Thomas Nellen, 2021. "The Collateral Costs of Clearing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 939-970, August.
    6. Michael J. Fleming & Frank M. Keane, 2021. "The Netting Efficiencies of Marketwide Central Clearing," Staff Reports 964, Federal Reserve Bank of New York.
    7. Fukai, Hiroki, 2021. "Optimal interventions on strategic fails in repo markets," MPRA Paper 106090, University Library of Munich, Germany.
    8. Piero Gottardi & Vincent Maurin & Cyril Monnet, 2019. "A theory of repurchase agreements, collateral re-use, and repo intermediation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 30-56, July.
    9. He, Zhiguo & Nagel, Stefan & Song, Zhaogang, 2022. "Treasury inconvenience yields during the COVID-19 crisis," Journal of Financial Economics, Elsevier, vol. 143(1), pages 57-79.
    10. Shengxing Zhang, 2014. "Collateral Risk, Repo Rollover and Shadow Banking," 2014 Meeting Papers 562, Society for Economic Dynamics.
    11. Corradin, Stefano & Maddaloni, Angela, 2020. "The importance of being special: Repo markets during the crisis," Journal of Financial Economics, Elsevier, vol. 137(2), pages 392-429.
    12. Hajime Tomura, 2012. "On the Existence and Fragility of Repo Markets," Staff Working Papers 12-17, Bank of Canada.
    13. Rydqvist, Kristian & Wu, Mark, 2016. "Pre-auction inventory and bidding behavior: Evidence from Canadian Treasury auctions," Journal of Financial Markets, Elsevier, vol. 30(C), pages 78-102.
    14. Morten L. Bech & Elizabeth C. Klee & Viktors Stebunovs, 2012. "Arbitrage, liquidity and exit: the repo and federal funds markets before, during, and emerging from the financial crisis," Finance and Economics Discussion Series 2012-21, Board of Governors of the Federal Reserve System (U.S.).
    15. Mariana Khapko & Marius Zoican, 2020. "How Fast Should Trades Settle?," Management Science, INFORMS, vol. 66(10), pages 4573-4593, October.
    16. Gurrola-Perez, Pedro & He, Jieshuang & Harper, Gary, 2019. "Securities settlement fails network and buy‑in strategies," Bank of England working papers 821, Bank of England.
    17. Maurin, Vincent, 2022. "Asset scarcity and collateral rehypothecation," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    18. Jean-Sébastien Fontaine & James Hately & Adrian Walton, 2017. "Repo Market Functioning when the Interest Rate Is Low or Negative," Discussion Papers 17-3, Bank of Canada.
    19. Kenneth D. Garbade & Matthew Rutherford, 2007. "Buybacks in Treasury cash and debt management," Staff Reports 304, Federal Reserve Bank of New York.
    20. Jean-Sébastien Fontaine & Adrian Walton, 2020. "Contagion in Dealer Networks," Staff Working Papers 20-1, Bank of Canada.
    21. Peter Hördahl & Michael R King, 2008. "Developments in repo markets during the financial turmoil," BIS Quarterly Review, Bank for International Settlements, December.

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