Failure to deliver and naked shorting plague Treasury market

October 26, 2008 by · 1 Comment
Filed under: Economic News 

This is something new I have come across.  Looks like we have a interesting little fact that isn’t being talked about.  First we had naked shorting of stocks, now we have naked shorting on treasuries.  According to the article, $2.29 trillion dollars of t-bill auctions failed to deliver the security.  An analysist in the article mention that is was a historic level of failures to deliver on treasury sales.


The credit crisis is causing a growing number of delivery failures with Treasury securities.  The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).

The outstanding U.S. public debt is $10.3 trillion.

“Current [fail] levels are at historic levels,” said Rob Toomey, managing director of the Securities Industry and Financial Markets Association’s funding and government and agency securities divisions. “There’s been significant flight to quality” with the market turmoil, he said.

With the strong demand for Treasury securities, “some of the entities that bought Treasuries are not making them available in the [repurchase] market, which is the traditional way to get them,” Mr. Toomey said.

Unlike some past bouts with high failure rates that involved particular bond issues, the current high fails involve all types of maturities, he said.

This month, New York- and Washington-based SIFMA came out with a set of best practices to reduce failed deliveries.

This year, the New York Fed revised its own Treasury market trading guidelines. Its guidelines, originally released last year, warned that short-sellers “should make deliveries in good faith.”

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One Response to “Failure to deliver and naked shorting plague Treasury market”
  1. Blessing says:

    Big help, big help. And superlative news of cruose.

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