US Treasury Settlement Failures Surged To A Whopping $216 Billion

November 4, 2024

US Treasury settlement failures surged to a whopping $216 billion last week bringing the aggregated amount this year to $5.6 trillion over the past 211 trading days.

During the trading week that concluded on November 1, 2024, the DTCC reported $216,366,812,896 in U.S. Treasury settlement failures.

This brings the total for daily U.S. Treasury settlement failures for the year to an alarming $5,635,756,178,331 over 211 trading days, averaging $26,709,744,941 in failures per week.

It’s important to clarify that this figure does not indicate that the entire amount is still outstanding in U.S. Treasury failures.

Additionally, the DTCC imposes fines on participants who fail to deliver U.S. Treasury securities.

To provide context, U.S. Treasury settlement failures at the DTCC are managed by the Fixed Income Clearing Corporation (FICC), a subsidiary of the DTCC.

The FICC serves multiple roles: it is a covered clearing agency, a self-regulatory organization, and a central clearing counterparty.

It is the exclusive central counterparty for processing trades in securities issued by the federal government and acts as the clearing house for markets trading U.S. government securities.

As a central clearing counterparty (CCP), the FICC assumes considerable risk by acting as an intermediary between participants in its Government Securities Division (GSD) and Mortgage-Backed Securities Division (MBSD), facilitating transactions by providing trade comparison, netting, risk management, and settlement services for U.S. government treasuries.

Moreover, both the DTCC and its subsidiary FICC are registered as clearing agencies and are regulated by the U.S. Securities and Exchange Commission.

However, retail investors have pointed out the significant negative impact FTDs have on the U.S. stock market, specifically with naked short selling.

Naked short selling consists of two primary steps.

First, you sell shares without actually owning, borrowing, or having the right to borrow them.

Later, you aim to buy and deliver the shares at the prevailing market price in hopes of making a profit.

If you’re unable to obtain the shares or if they are unavailable, this leads to a failure to deliver (FTD).

The significant amount of FTDs underscores the challenges and risks inherent in the trading process, highlighting potential inefficiencies in the market and the need for stricter regulatory oversight to ensure that all transactions are executed properly and timely.

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Also Read: Two Overseas Firms Are Now Indicted For Naked Short Selling