Securities settlement fails network and buy-in strategies

Staff working papers set out research in progress by our staff, with the aims of encouraging comments and debate.
Published on 06 September 2019

Staff Working Paper No. 821

By Pedro Gurrola-Perez, Jieshuang He and Gary Harper

In the context of securities settlement, a trade is said to fail if on the settlement date either the seller does not deliver the securities or the buyer does not deliver funds. Settlement fails may have consequences for the parties directly involved and for the system as a whole. Chains of fails, for example, could lead to gridlock situations and large volume of fails can affect the liquidity and smooth functioning of financial markets. In this paper, we consider UK government bonds (gilts) and UK equities settlement data to examine the determinants of settlement fails and to explore the network characteristics of chains of settlement fails with the aim of identifying an optimal strategy to conduct a buy-in process that could resolve cascades of fails.

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