Fail to Receive, in a securities settlement context, describes a situation where the purchasing party does not receive the agreed-upon assets by the scheduled settlement date. This operational anomaly indicates a breach in the settlement process, creating a delivery default from the seller’s side. Its purpose is to identify a settlement risk event and a source of operational inefficiency.
Mechanism
The operational sequence involves a trade being executed, followed by the buyer’s clearing agent expecting to receive the securities from the seller’s clearing agent on the settlement date. A Fail to Receive occurs if the assets are not delivered, often due to insufficient inventory at the seller’s end, administrative errors, or technical issues within the clearing system.
Methodology
The strategic implication for market participants includes potential financial penalties, increased counterparty risk, and disruption to subsequent trading activities dependent on the received assets. This methodology requires robust post-trade processing and reconciliation systems to identify and resolve such failures promptly, sometimes necessitating buy-ins or cash compensation to mitigate losses.
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