As if fails in equities weren't enough, the Fails in U.S. Treasuries amounted to $2 trillion in October 2008 alone. The settlement system is completely broken. This is the result of the "trust me" financial system that exists in the U.S. The FED is responsible for regulating this market but to date, almost no regulations exist regarding settlement. It's all on a "trust me" basis. Market Overall
is indicative that the settlement system is broken. Data from a Freedom of Information Act (FOIA) request for the total number of failed deliveries on the NYSE on May 31, 2006, shows that there were 65 million shares of failed deliveries in NYSE issues, and there were 590 total issues on the Reg SHO threshold list. For all markets and exchanges, over 2 billion undelivered equity securities are outstanding on any given day in the U.S. equities markets, not including “ex-clearing” failures (known via in-clearing data from the DTCC, obtained through Freedom of Information Act requests). The FOIA data shows that NYSE and NASDAQ outstanding delivery failures (FTDs) represent 4% of average daily trade volume; and OTC outstanding delivery failures represent 28% of average daily trade volume. These figures are only for failed security deliveries over and above those concealed from view due to CNS netting effects, and do not include “ex-clearing” delivery failures either. The number of delivery failures is under reported. |
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(Click to download) Treasury Dept Letter on Fails in U.S. Treasuries Via the FICC (Fixed Income Clearing Corporation) Subsidiary of the DTCC The letter addresses old aged fails as well as new ones. Just how rotten is the system? (Click to download) US Treasury Dept White Paper on Securities lending facility It's all due to "fails" and the systemic risks. But papering over "fails" via lending is the easy way out and is not a real solution. It only alleviates "fails to receive" not the systemic demand imbalances nor "fails to deliver" - they just get aged (Click to Download) Comment Letters on the Treasury Dept's proposal This is like the DTCC's stock borrow program - on steroids - backed by the U.S. Government. Of course the prime brokers are all for it. It adds legitimacy to causing "fails" in the first place. |
The Blue Bars show the number of fake shares sold to
investors, shares sold but not delivered (FTDs) or "fails
to deliver" and what it does to the market price.
investors, shares sold but not delivered (FTDs) or "fails
to deliver" and what it does to the market price.
