Trade Settlement Failures in U.S. Bond Markets
STP Working Paper No. STP2007_1
39 Pages Posted: 29 Sep 2007 Last revised: 28 Sep 2008
Date Written: September 23, 2008
In this study (an update and revision to our 2007 working paper), we estimate the total value of trade settlement failures in the US bond markets. Analyzing data from multiple sources, we show that the value of settlement failures is rising. Regulatory and market efforts to reduce the problem have been largely unsuccessful. In April 2008 fails to deliver in bond markets reached a peak value of $600 billion, a fail rate of nearly 9%. We calculate the resulting loss of tax revenue on payments in lieu of interest (on tax-exempt municipal and Treasury securities) to be $42 million per year to the federal government and $271 million per year to the states. We calculate the loss of use of funds to investors as a result of securities paid for but not received to be $7 billion per year.
Keywords: failure to deliver
JEL Classification: G10, G14, G38
Suggested Citation: Suggested Citation