Fails and Fails Management

This course aims to provide a comprehensive introduction to the functions and procedures used to identify, clean up, and prevent failed trades. The program content examines the significant issues facing market participants around failed and unsettled trades. Fail management is an important component of operational risk management.

Participants will explore the many risks, including operational, market and credit risk associated with failed trades and why fail rates have been growing in recent years, as markets and exchanges proliferate. These global markets introduce their own complexity with regards to different approaches, legal requirements and rules when dealing with failed trades, including suspending and defaulting trade activity.

Course Objectives

By the end of the course, participants will be able to:

• Describe the trade and settlement cycles and the point at which failed trades occur
• Understand how failed trades are identified in books and records systems
• Explain the relationship between fails and market, credit, and operational risks
• Explain the implications and costs of fails, including financial and regulatory
• Identify the reasons why trades fail and why fail rates continue to rise
• How uncovered short sales can result in trades failing
• Analyze why ETF’s are so vulnerable to failed trades
• Summarize the importance and methods of preventing fails
• Describe the actions required to clean up failed trades
• Describe the use and economics of security borrowing and reverse purchase agreements in fails management
• Compare fail rates in specific markets
• Review the steps that markets are taking to reduce fail rates
• Explain market differences in the management of fails, including fail penalties and fines

Suggested Prerequisites: None

Program Level:Foundational

Advance Preparation: None

Computers and Financial Calculators: N/A

Recommended CPE Credits: 7