Chapter 13
Failed Trades – Causes, Consequences and Resolution
In section 12.2.4 we saw the settlement agent communicating details of settlement instructions that could not be fulfilled to its customer. When a settlement instruction cannot be implemented on value date it is known as a failed trade.
13.1 FAILED TRADES – CAUSES
The causes of failed trades fall into three categories:
- Problems with instructions
- The seller does not have the securities to deliver
- The buyer does not have sufficient cash or credit to make payment.
13.1.1 Unmatched settlement instructions
The settlement agent may be unable to match the buyer’s and seller’s instructions for any one or more of the following reasons:
- One of the parties has failed to send an instruction at all, or has sent it too late for processing on value date.
- The instructions sent by the two parties differ substantially from each other.
Instruction-related problems are almost always due to processing errors by one or other party. The possible causes of such a processing error include:
- Human error at the data entry stage: The order was entered for the wrong stock, wrong quantity of stock, wrong price, buy instead of sell, etc.
- Computation error: If the trade was entered correctly then the part of the process that calculates trade amounts such as principal amount, accrued interest, commission, fees (these elements sum to the trade consideration) may have failed for some reason. This type of problem may be caused by one or more of the ...
