Committees: Fails Working Group
After a thorough review process, the AMF is pleased to announce the publication of its Standard Fail Report White Paper. The White Paper was officially published and promulgated at the AMF Member Meeting on Thursday, February 28, 2008, in New York City. The White Paper recommends the usage of an industry standard fail report and discusses the benefits of using a standard. The published fail report template would enable broker/dealers and custodians to embrace an industry standard format and method for reporting fails to their asset manager counterparts. The Asset Managers Forum is confident that in using an industry-developed standard template, all parties to a trade would add efficiency in the fails reporting process. After its review process, the White Paper was revised to address both industry comments and comments from other areas of SIFMA. The AMF would like to recognize and thank Robert Kemp, Senior Associate of Operations at Morgan Stanley Investment Management, for his leadership as Chair of the AMF Fails Management Working Group.
Click here to view the Standard Fail Report White Paper
Click here to view the Standard Fail Report Sample Template
Issue Description
Trade fails affect virtually all aspects of the securities industry. Asset managers, dealers and custodians are all at risk when a security fails to settle. Fails encompass all asset classes and product lines and can be a costly expense for the securities industry. In October 2006, the AMF hosted a workshop on fails management and resolution for the industry. At the workshop, participants agreed that there are many issues that cause fails that maybe significantly reduced. Participants recommended that the AMF develop a working group to address these issues.
AMF Position
The AMF Fails Working Group has committed to work on initiatives that reduce operational risk arising from the most common causes of fails. To this end, the Working Group has taken some initial steps to improve the operations activities associated with the clearing and settlement of fixed-income and equity securities so that the industry would see the long-term benefits in avoiding fails that were caused by operational issues.
As a first step, the Fails Working Group will develop a standardized fail report. Currently, asset managers receive fail reports from many different custodians and dealers in a variety of different formats. By using one standard format, asset managers would be able to better manage and even mitigate fails by bringing automation to a manual process. In working with a standardized fail report, asset managers can readily identify and track performance and better understand the causes of fails. By having readily-available information on the causality of fails, an asset manager can take appropriate and well-informed actions to clear and settle the trade. In addition, an asset manager can act with assurance when allocating resources to address chronic fails.
Next Steps
Robert Kemp of Morgan Stanley Investment Management will continue to chair the Working Group and conduct monthly meetings with the support of AMF and SIFMA staff. The Working Group (which is comprised of more than 30 SIFMA and AMF members from asset management firms, custodian banks and broker/dealer firms) will continue to develop a standardized format for fails reporting. In this effort, the Working Group will coordinate with ISITC, a standards organization that is also working on the standardization of fails documentation with a view to automate the fail reports across the industry. Furthermore, the Working Group has agreed to develop a diagram of the “current” industry workflow and compare that to “proposed” opportunities to achieve efficiencies.
The Working Group will also determine whether market participants can develop fail metrics because the metrics are provided by each custodian and dealer individually. The Working Group agreed that after a list of reasons for fails has been created, the group should try to identify trends.
The Working Group will make continual efforts to reach out to all interested constituencies and leverage the work done by other groups.