It’s been a while since FT Alphaville looked at settlement fails, but the following chart from RBC Capital Markets did catch our eye this week:
As RBC notes, there’s a new settlement failure fee coming into force in the US for MBS securities on February 1, which hopes to discourage the current rate of failure.
It’s worth pointing out that when a similar fine was applied to the Treasury Security market back in May 2009 it suppressed fails almost immediately. Problem is, it also seemed to drive them into the MBS market instead.
Note the following chart from Fred Sommers over at the Basis Point Group, a market operations consulting group:
The timing of the rise in MBS settlement fails is interesting.
So may there be unintended consequences of the new (MBS) failure fee this time round too? And in this case, where might they bleed into?
One market that’s been behaving erratically for a while in terms of settlement fails, of course, has been the exchange traded fund market.
Sommers has been tracking things here as well:
Could we see an increased rate of failure here, instead?
Related links:
What’s the ETF settlement fail issue? – FT Alphaville
To (settlement) fail, or not to fail – FT Alphaville
Why $200bn in US trades are failing each day – FT
(Settlement) failure is an option – FT Alphaville