A Quick Look At Agency MBS Fails and the New TMPG rules

18 Jul

For those of you who are particularly active in the Agency MBS sector, I’m sure you’re well aware that the TMPG (Treasury Market Practices Group) has decided to begin charging anytime there’s a failure to deliver securities. From the TMPG:

For fails in Treasury and agency debt securities, the TMPG recommends that a settlement fails charge be calculated each day based on the greater of (a) 3 percent per annum minus the TMPG reference rate* at 5:00 p.m. New York time on the preceding business day, and (b) zero. When the TMPG reference rate is  greater than or equal to 3 percent under the current formula, there will be no explicit financial charge for failing, and under this formulation the fails charge will be capped at 3 percent per annum.

This new fails charge goes into effect for all transactions taking place after Feb 1, 2012 and will apply to any securities that remain unsettled after this date. Here’s a look at where we are in terms of fails for the Agency market based on the most recent NYFRPD Primary Dealer report

It will be interesting to see in the coming months ahead of the effective rule to see how people begin to respond to this, for some hint as to how this may play out, let’s look at US Treasury fails since the fails charge was enacted on May 1, 2009 in that market:

You can read the full TMPG announcement for the Agency Fails Charge at this link


One Response to “A Quick Look At Agency MBS Fails and the New TMPG rules”


  1. NY Fed Primary Dealers Report – July 28, 2011 « Stone Street Advisors - July 29, 2011

    […] on fails in the Agency MBS market and the proposed TMPG fails charge. Nothing (yet) on dealing with the pretty massive amounts of fails in the non Agency MBS […]

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