IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/0821.html
   My bibliography  Save this paper

Securities settlement fails network and buy‑in strategies

Author

Listed:
  • Pedro Gurrola-Perez

    (Bank of England)

  • Jieshuang He

    (The Chinese University of Hong Kong)

  • Gary Harper

    (Bank of England)

Abstract

In the context of securities settlement, a trade is said to fail if on the settlement date either the seller does not deliver the securities or the buyer does not deliver funds. Settlement fails may have consequences for the parties directly involved and for the system as a whole. Chains of fails, for example, could lead to gridlock situations and large volume of fails can affect the liquidity and smooth functioning of financial markets. In this paper, we consider UK government bonds (gilts) and UK equities settlement data to examine the determinants of settlement fails and to explore the network characteristics of chains of settlement fails with the aim of identifying an optimal strategy to conduct a buy‑in process that could resolve cascades of fails.

Suggested Citation

  • Pedro Gurrola-Perez & Jieshuang He & Gary Harper, 2019. "Securities settlement fails network and buy‑in strategies," Bank of England working papers 821, Bank of England.
    • Handle: RePEc:boe:boeewp:0821
    as

    Download full text from publisher

    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/securities-settlement-fails-network-and-buy-in-strategies.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marco Bardoscia & Stefano Battiston & Fabio Caccioli & Guido Caldarelli, 2016. "Pathways towards instability in financial networks," Papers 1602.05883, arXiv.org, revised Feb 2017.
    2. Fotak, Veljko & Raman, Vikas & Yadav, Pradeep K., 2014. "Fails-to-deliver, short selling, and market quality," Journal of Financial Economics, Elsevier, vol. 114(3), pages 493-516.
    3. repec:uts:ppaper:2010:2 is not listed on IDEAS
    4. Devriese, Johan & Mitchell, Janet, 2006. "Liquidity risk in securities settlement," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1807-1834, June.
    5. 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.
    6. 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).
    7. Rajkamal Iyer & Marco Macchiavelli, 2017. "The Systemic Nature of Settlement Fails," FEDS Notes 2017-07-03, Board of Governors of the Federal Reserve System (U.S.).
    8. Talis Putnins, 2010. "Naked short sales and fails-to-deliver: An overview of clearing and settlement procedures for stock trades in the USA," Published Paper Series 2010-2, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    9. Ramon P. DeGennaro & James T. Moser, 1990. "Failed delivery and daily Treasury bill returns," Working Papers (Old Series) 9003, Federal Reserve Bank of Cleveland.
    10. Kenneth D. Garbade & Frank M. Keane & Lorie Logan & Amanda Stokes & Jennifer Wolgemuth, 2010. "The introduction of the TMPG fails charge for U.S. Treasury securities," Economic Policy Review, Federal Reserve Bank of New York, vol. 16(Oct), pages 45-71.
    11. Evangelos Benos & Filip Zikes, 2016. "Liquidity determinants in the UK gilt market," Bank of England working papers 600, Bank of England.
    12. Andreea Bicu & Louisa Chen & David Elliott, 2017. "The leverage ratio and liquidity in the gilt and repo markets," Bank of England working papers 690, Bank of England.
    13. Michael J. Fleming & Frank M. Keane & Antoine Martin & Michael McMorrow, 2014. "Measuring Settlement Fails," Liberty Street Economics 20140919b, Federal Reserve Bank of New York.
    14. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
    15. Marco Bardoscia & Stefano Battiston & Fabio Caccioli & Guido Caldarelli, 2017. "Pathways towards instability in financial networks," Nature Communications, Nature, vol. 8(1), pages 1-7, April.
    16. Richard B. Evans & Christopher C. Geczy & Adam V. Reed, 2009. "Failure Is an Option: Impediments to Short Selling and Options Prices," The Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 1955-1980, May.
    17. Boni, Leslie, 2006. "Strategic delivery failures in U.S. equity markets," Journal of Financial Markets, Elsevier, vol. 9(1), pages 1-26, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Archana Jain & Chinmay Jain, 2015. "Fails-to-Deliver before and after the Implementation of Rule 203 and Rule 204," The Financial Review, Eastern Finance Association, vol. 50(4), pages 611-636, November.
    2. Jean-Sébastien Fontaine & Adrian Walton, 2020. "Contagion in Dealer Networks," Staff Working Papers 20-1, Bank of Canada.
    3. Chiara Perillo & Stefano Battiston, 2020. "Financialization and unconventional monetary policy: a financial-network analysis," Journal of Evolutionary Economics, Springer, vol. 30(5), pages 1385-1428, November.
    4. Wiersema, Garbrand & Kleinnijenhuis, Alissa M. & Wetzer, Thom & Farmer, J. Doyne, 2023. "Scenario-free analysis of financial stability with interacting contagion channels," Journal of Banking & Finance, Elsevier, vol. 146(C).
    5. Alessandro Ferracci & Giulio Cimini, 2021. "Systemic risk in interbank networks: disentangling balance sheets and network effects," Papers 2109.14360, arXiv.org, revised Sep 2022.
    6. Luu, Duc Thi & Napoletano, Mauro & Barucca, Paolo & Battiston, Stefano, 2021. "Collateral Unchained: Rehypothecation networks, concentration and systemic effects," Journal of Financial Stability, Elsevier, vol. 52(C).
    7. Irena Barjav{s}i'c & Stefano Battiston & Vinko Zlati'c, 2023. "Credit Valuation Adjustment in Financial Networks," Papers 2305.16434, arXiv.org.
    8. Roncoroni, Alan & Battiston, Stefano & Escobar-Farfán, Luis O.L. & Martinez-Jaramillo, Serafin, 2021. "Climate risk and financial stability in the network of banks and investment funds," Journal of Financial Stability, Elsevier, vol. 54(C).
    9. Jiajia, Liu & Kun, Guo & Fangcheng, Tang & Yahan, Wang & Shouyang, Wang, 2023. "The effect of the disposal of non-performing loans on interbank liquidity risk in China: A cash flow network-based analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 105-119.
    10. Barnett, William A. & Wang, Xue & Xu, Hai-Chuan & Zhou, Wei-Xing, 2022. "Hierarchical contagions in the interdependent financial network," Journal of Financial Stability, Elsevier, vol. 61(C).
    11. P'al Andr'as Papp & Roger Wattenhofer, 2020. "Default Ambiguity: Finding the Best Solution to the Clearing Problem," Papers 2002.07741, arXiv.org, revised Oct 2021.
    12. Fabio Caccioli & Paolo Barucca & Teruyoshi Kobayashi, 2018. "Network models of financial systemic risk: a review," Journal of Computational Social Science, Springer, vol. 1(1), pages 81-114, January.
    13. Roncoroni, Alan & Battiston, Stefano & D’Errico, Marco & Hałaj, Grzegorz & Kok, Christoffer, 2021. "Interconnected banks and systemically important exposures," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    14. X. Zhang & L. D. Valdez & H. E. Stanley & L. A. Braunstein, 2019. "Modeling Risk Contagion in the Venture Capital Market: A Multilayer Network Approach," Complexity, Hindawi, vol. 2019, pages 1-11, December.
    15. Giansante, Simone & Manfredi, Sabato & Markose, Sheri, 2023. "Fair immunization and network topology of complex financial ecosystems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 612(C).
    16. 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.
    17. Stratmann, Thomas & Welborn, John W., 2016. "Informed short selling, fails-to-deliver, and abnormal returns," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 81-102.
    18. Paolo Barucca & Marco Bardoscia & Fabio Caccioli & Marco D'Errico & Gabriele Visentin & Guido Caldarelli & Stefano Battiston, 2020. "Network valuation in financial systems," Mathematical Finance, Wiley Blackwell, vol. 30(4), pages 1181-1204, October.
    19. Brandi, Giuseppe & Di Clemente, Riccardo & Cimini, Giulio, 2018. "Epidemics of liquidity shortages in interbank markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 507(C), pages 255-267.
    20. Valentina Macchiati & Giuseppe Brandi & Tiziana Di Matteo & Daniela Paolotti & Guido Caldarelli & Giulio Cimini, 2022. "Systemic liquidity contagion in the European interbank market," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(2), pages 443-474, April.

    More about this item

    Keywords

    Settlement; post-trade process; settlement discipline; cascade effects; buy-in;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0821. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Digital Media Team (email available below). General contact details of provider: https://edirc.repec.org/data/boegvuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.