The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
Regional & Community Outreach connects the Bank to Main Street via structured dialogues and two-way conversations on small business, mortgages, and household credit.
Economic Education improves public knowledge about the Federal Reserve System, monetary policy implementation, and promoting financial stability through the Museum and programs for K-16 students and educators, and the community.
The Introduction of the TMPG Fails Charge for U.S. Treasury Securities
October 2010Volume 16, Number 2
JEL classification: G10, G18, H63
Authors: Kenneth D. Garbade, Frank M. Keane, Lorie Logan, Amanda Stokes, and Jennifer Wolgemuth
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.