The Introduction of the TMPG Fails Charge for U.S. Treasury Securities

27 Pages Posted: 17 Oct 2010

See all articles by Kenneth Garbade

Kenneth Garbade

Federal Reserve Bank of New York

Frank M. Keane

Federal Reserve Banks - Federal Reserve Bank of New York

Lorie Logan

Federal Reserve Banks - Federal Reserve Bank of New York

Amanda Stokes Kirby

Federal Reserve Banks - Federal Reserve Bank of New York

Jennifer Wolgemuth

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: October 2010

Abstract

The TMPG fails charge for U.S. Treasury securities provides that a buyer of Treasury securities can claim monetary compensation from the seller if the seller fails to deliver the securities on a timely basis. The charge was introduced in May 2009 and replaced an existing market convention of simply postponing - without any explicit penalty and at an unchanged invoice price - a seller’s obligation to deliver Treasury securities if the seller fails to deliver the securities on a scheduled settlement date. This article explains how a proliferation of settlement fails following the insolvency of Lehman Brothers Holdings Inc. in September 2008 led the Treasury Market Practices Group (TMPG) - a group of market professionals committed to supporting the integrity and efficiency of the U.S. Treasury market - to promote a change in the existing market convention. The change - the introduction of the fails charge - was significant because it mitigated an important dysfunctionality in the secondary market for U.S. Treasury securities and because it stands as an example of the value of cooperation between the public and private sectors in responding to altered market conditions in a flexible, timely, and innovative fashion.

Keywords: TMPG fails charge, U.S. Treasury securities

JEL Classification: G10, G18, H63

Suggested Citation

Garbade, Kenneth and Keane, Frank M. and Logan, Lorie and Kirby, Amanda Stokes and Wolgemuth, Jennifer, The Introduction of the TMPG Fails Charge for U.S. Treasury Securities (October 2010). Economic Policy Review, Vol. 16, No. 2, October 2010, Available at SSRN: https://ssrn.com/abstract=1692900 or http://dx.doi.org/10.2139/ssrn.1692900

Kenneth Garbade (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Frank M. Keane

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
(212) 720-6079 (Phone)
(212) 720-1941 (Fax)

Lorie Logan

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Amanda Stokes Kirby

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Jennifer Wolgemuth

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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