Recommendations of the Treasury Market Practices Group / More Information Is Now Available

As previously announced to buy-side members, the Treasury Market Practices Group (TMPG) has recommended that market participants agree that the invoice price -- that is, the cash amount the buyer has agreed to pay against the delivery of securities --- on any U.S. Treasury securities cash or financing transaction that fails to settle on the originally scheduled date be reduced at a fails penalty rate equal to the greater of a) 3% per annum minus the fed funds target rate at 5:00 p.m. ET on the business day prior to the originally scheduled settlement date, and b) zero.

The TMPG has also announced that this fails charge implementation date will be May 1, 2009, pending member and regulatory approval for FICC members. Further, both TMPG and SIFMA recently issued a "U.S. Treasury Securities Fails Charge Trading Practice" document. This document may be viewed in either of the links below.

Among other matters, it is important to note that the above-mentioned trading practice document suggests standard confirmation language. Basically, this confirmation language states that Treasury market cash or financing trades are subject to the specific requirements embodied in the document itself. These requirements address calculation of fails charges, payment, and how the requirements are applied to common transaction types.

Various industry groups, including the Asset Management Group, will conduct meetings for operations professionals involved in the Treasury market to discuss the practical elements of implementing the proposed trading practice. At this time, however, we believe it is appropriate to ask AMG members to socialize the TMPG trading practice with colleagues at their firms and with others, such as custodians and vendors.

If you would like to participate in AMG meetings regarding this matter, please contact Diane Trupia at 212.313.1170 or dtrupia@sifma.org.

The trading practice document is now available on both the SIFMA and TMPG Websites and can be viewed by clicking on the links below.

SIFMA-Fails Charge Trading Practice.

TMPG-Fails Charge Trading Practice.

Important Publications:
SIFMA SmartBrief (past five issues)
SIFMA Regulatory Update
SIFMA Washington Weekly