Settlement failures: more common and more costly
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Settlement failures: more common and more costly

Market conditions have heightened concerns over the potential cost of failed securities settlement as the world’s largest financial market prepares to move to T+1.

Photo: iStock

Settlement failure – defined by the Central Securities Depository Regulation (CSDR) as the ‘non-occurrence of settlement, or partial settlement of a securities transaction on the intended settlement date, due to a lack of securities or cash and regardless of the underlying cause’ – is a big issue for investors and intermediaries.

A report published by Firebrand Research in February estimated that more than $96 billion was spent on resolving failures across the global equities market in 2023 and that the figure for 2025 could surpass the $157 billion spent on dealing with exceptions during 2021.

The cost of settlement fails cannot be swept under the rug any longer
Daniel Carpenter, Meritsoft

The worry is over an expected spike in settlement failures in the months immediately following the move to T+1, with the US, Canada and Mexico due to make that leap ahead of European and Asian markets at the end of May 2024.

“The cost of settlement fails cannot be swept under the rug any longer,” says Daniel Carpenter, chief executive of post-trade process automation provider Meritsoft. “While the US doesn’t have a scheme imposing penalties for failed trades as Europe has with CSDR, the cost of interest claims for failed trades acts as a penalty in all but name.

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