All About Failing Trades

By Phil Mackintosh4 days ago


Failure-to-Deliver (FTD) occurs when one party fails to uphold their end of a trade by not delivering their shares (or cash) by the settlement date, currently two days after the trade (T+2).

Weve talked recently about how Reg SHO rules requireshort sellersto locate (although not physically pre-borrow) stock in advance of their short sale so they are able to settle their short trades. But even long investors can fail trades if there is a problem with account allocations and booking trades through to custodian accounts.

Which made us wonder: Just how many trades fail?

Most symbols have failed trades

Surprisingly,data from the SECshows that 40% of all tickers had shares that failed to deliver each day (Chart 1).

Our research shows that fails are distributed very equally across market cap. We allocated all NMS corporate stocks to quartiles based on their market cap, putting around 1,500 stocks in each basket. Then we looked at how many stocks in each quartile were on the fail list. The blue quartiles in Chart 1 are very equal, although large cap and microcap fail at a slightly higher rate than stocks in between.

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