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.
The Outreach & Education function engages, empowers and educates the public in the Second District. Our outreach mission furthers the Bank’s commitment to the region by listening to the communities we serve and developing programs, analysis and sponsored conferences and clinics to help meet their needs. Our education mission aims to advance public knowledge about the Federal Reserve System and its role in the economy.
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.