The Securities Industry and Financial Markets Association (SIFMA) through its government and funding divisions, noting a recent, significant increase in the level of settlement fails in the U.S. Treasury securities market is issuing recommendations to member firms. SIFMA recommends that member firms immediately address Treasury settlement fails, and in particular, ensure that management and compliance are engaged in efforts to reduce the overall level of settlement fails in this market.
“If firms focus attention on monitoring securities fails, including increasing the level of dialogue among essential parties, they can reduce settlement fails,” according to Rob Toomey, SIFMA managing director.
In addition, firms may wish to consider risk mitigation procedures and practices that will lessen the occurrence of settlement fails. These practices include, but are not limited to:
- Margining of aged settlement fails
- Setting limitations on trading techniques that could contribute to an increase in settlement fails
- Identifying pair-offs
- Facilitating early cash-settlement of continuing fails
- Sourcing securities needed for delivery including, as appropriate, through repurchase transactions at negative rates.
Each firm will need to assess which procedures and practices are appropriate to its specific situation.
SIFMA believes that immediate attention to this issue will preserve and enhance the liquidity of the market for U.S. Treasury securities, and maintain its benchmark status. To assist market all participants, SIFMA will be publishing a Fails Best Practices document that will provide day-to-day fails management practices and techniques to all U.S. Treasury securities market participants.