Fail Trades
The Transaction that does not settle in the market on the given settlement date or value date is known as fail trades.
In simple words an outcome in a transaction where one of the counterparties in the transaction fails to meet their respective obligations.
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Reasons for Fail Trades
Inability of one party to pay to the another – If one of the party turns bankrupt and is not able to pay the other at the time of settlement a trade would result in a fail trade in the market.
Client has DK the trade – If the client has DK( Don’t know the trade) as it may pertain to some other counterparty or he has already cancelled the trade then the trade would fail in the market.
Wrong conformation – At the time of confirmation if the confirmation team has wrongly confirmed the economic and non economic details of the trades the trade would fail in the market, Trade is unable to settle because of a discrepancy on a trade (i.e. price discrepancy, trade date discrepancy, settle date discrepancy etc).
Insufficient securities at the time of Funding – If the client does not have enough collateral in its bucket at the time of settlement the trade would still fail.
Incorrect settlement instructions –If the settlement instructions for a trade is incorrect then a trade fail, E.g.: Bank is attempting to make a delivery but its unsuccessful because the delivery instructions are not matching.
Counterparties in different location – If the counterparties are in two different location like one in Australia and the other in US.
Cancel and Rebook of trade - Trade fails due to changes to trade details by the client if he has cancelled a trade with a counterparty and has rebooked the same with some other counterparty at the same time, then the previous trade would fail.
Late Confirmation of trade - Trade is booked and confirmed late and as a result fails due to timing.
You can also check our Blogs
Fail Trades Management
Proper Management of Cash and Collateral
SBL
Proper confirmation by having a 4i check
Impact of Failed Trades
Interest on cash: The counterparties to the trade would charge interest/additional fee if the other party fails to make the payment or securities on time.
Client relationships: If any of the counterparty defaults in the transaction it would create a negative impression of the other party in the market.
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