The Treasury Markets Practices Group (TMPG), comprised of leading sell-side and buy-side participants in the U.S. Treasury market and sponsored by the Federal Reserve Bank of New York (FRBNY) and the Securities Industry and Financial Markets Association (SIFMA), yesterday published the U.S. Treasury Securities Fails Charge Trading Practice (the “Trading Practice”), as part of TMPG’s measures to remediate widespread settlement fails in the Treasury market. The Trading Practice provides procedures by which market participants may elect “to assess and pay ‘fails charges’ for certain delivery failures in the market for U.S. Treasury securities,” where one party fails to deliver Treasuries to another party by the date previously agreed between the parties. In addition, the Trading Practice provides guidelines describing the application of the fails charge to common types of transactions, including cash market, repurchase, securities loan, options and forward transactions.
Adoption of the Trading Practice by market participants is voluntary. The FRBNY endorsed the Trading Practice, however, and strongly encouraged its adoption by all market participants, as the FRBNY is “convinced that universal adoption of the trading practice is a crucial step in alleviating the chronic fails problem that currently threatens to constrain Treasury market liquidity and function.” The FRBNY also stated that it would adopt this new trading practice in its own market operations.