US Treasuries Fails Charge Calculator

The Federal Reserve Bank of New York’s (FRBNY) Treasury Market Practices Group’s (TMPG) recommendations to impose a financial penalty on fails in US Treasury securities have been effective in reversing the trend of “widespread and persistent” settlement fails. Details of TMPG’s recommendations for best practices are available at www.newyorkfed.org/tmpg.

Effective May 1, 2009, charges for fails to deliver began to accrue.
On interdealer trades, FICC automatically performs a daily calculation of debits and credits on failed settlement obligations to be accrued and applied to members’ GSD monthly bills.

For fails on trades where non-members of FICC are involved, a buyer who does not receive securities from a seller on the agreed settlement date is strongly encouraged by TMPG to submit a claim to the seller for fails penalty charges. In today’s market with a target fed funds rate (range) of 0 - .25 percent, the claim on a $50 million trade that fails for one day would be $4,166.67; for one week would be $29,166.67.

Click here to access Jordan & Jordan's Fails Charge Calculator to assist in validating your computations for claims on fails in US government securities. To use the Fails Charge Calculator, follow these simple instructions.

To calculate “C”, the claim amount in dollars:
  1. Enter “n”, where n = the number of calendar days from the failed settlement date to the next valid business day when delivery may take place (or actual delivery date, in cases where delivery has been made); or, to the last calendar day of the month, whichever comes first.
  2. Enter “R”, where R = the TMPG reference rate at the close of business on the business day preceding the fail, in percent per annum. (Currently the TMPG reference rate is the target federal funds rate specified by the Federal Open Market Committee (“FOMC”), or the lower limit of a target band if specified by the FOMC, e.g. R = 0 where the target band is 0 - .25. In cases where a target rate or band has not been specified by the FOMC, the TMPG will recommend some other readily observable short term interest rate.)
  3. Enter “P”, where P = total proceeds due from the buyer, in dollars.
There may be trading strategies or operational procedures and techniques that your firm could employ to reduce exposure to fails claims. Contact Jordan & Jordan to learn from industry experts with years of experience in US government securities operations management.

Please contact Mary Lou Von Kaenel at 212-652-4483, or email marylou@jandj.com for more information.