The Introduction of the TMPG Fails Charge for U.S. Treasury Securities

The TMPG fails charge for U.S. Treasury securities provides that a buyer of Treasury securities can claim monetary compensation from the seller if the seller fails to deliver the securities on a timely basis. The charge was introduced in May 2009 & replaced an existing market convention of simply postponing -- without any explicit penalty & at an unchanged invoice price -- a seller's obligation to deliver Treasury securities if the seller fails to deliver the securities on a scheduled settlement date. This article explains how a proliferation of settlement fails following the insolvency of Lehman Brothers Holdings Inc. in September 2008 led the Treasury Market Practices Group (TMPG) -- a group of market professionals committed to supporting the integrity & efficiency of the U.S. Treasury market -- to promote a change in the existing market convention. The change -- the introduction of the fails charge -- was significant because it mitigated an important dysfunctionality in the secondary market for U.S. Treasury securities & because it stands as an example of the value of cooperation between the public & private sectors in responding to altered market conditions in a flexible, timely, & innovative fashion. Adapted from the source document.