Securities Settlement Fails Network and Buy‑In Strategies

33 Pages Posted: 9 Sep 2019

See all articles by Pedro Gurrola-Perez

Pedro Gurrola-Perez

World Federation of Exchanges

Jieshuang He

The Chinese University of Hong Kong, Shenzhen; Indiana University Bloomington - Center for Applied Economics and Policy Research

Gary Harper

Bank of England

Date Written: September 6, 2019

Abstract

In the context of securities settlement, a trade is said to fail if on the settlement date either the seller does not deliver the securities or the buyer does not deliver funds. Settlement fails may have consequences for the parties directly involved and for the system as a whole. Chains of fails, for example, could lead to gridlock situations and large volume of fails can affect the liquidity and smooth functioning of financial markets. In this paper, we consider UK government bonds (gilts) and UK equities settlement data to examine the determinants of settlement fails and to explore the network characteristics of chains of settlement fails with the aim of identifying an optimal strategy to conduct a buy‑in process that could resolve cascades of fails.

Keywords: settlement, post-trade process, settlement discipline, cascade effects, buy-in

JEL Classification: E42, G23

Suggested Citation

Gurrola Perez, Pedro and He, Jieshuang and Harper, Gary, Securities Settlement Fails Network and Buy‑In Strategies (September 6, 2019). Bank of England Working Paper No. 821, September 2019. Available at SSRN: https://ssrn.com/abstract=3449458 or http://dx.doi.org/10.2139/ssrn.3449458

Pedro Gurrola Perez (Contact Author)

World Federation of Exchanges ( email )

125 Old Broad Street
London, EC2N 1AR
United Kingdom
EC2N 1AR (Fax)

HOME PAGE: http://www.world-exchanges.org

Jieshuang He

The Chinese University of Hong Kong, Shenzhen ( email )

Indiana University Bloomington - Center for Applied Economics and Policy Research ( email )

100 South Woodlawn Avenue, Wylie Hall 250
Bloomington, IN 47405-1704
United States

Gary Harper

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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