In consideration of a strong recognition of the necessity to review the fails practices and other processes in settlement of bond transactions since the outbreak of the global financial crisis in September 2008, JSDA established the "Working Group concerning Review of Fails Practices for Bond Trading" in May 2009.
The occurrence rate for fails in Japan is at quite a low level compared with the U.S., where fails practices are more widely established. The background to this situation is the fact that while market participants have made efforts to avoid fails, the necessity of fails practices themselves have not been well recognized in Japan. Although fails can occur under normal conditions, they tend to occur more frequently in times of crisis, such as the Lehman Brothers bankruptcy in 2008. If not properly handled, fails can cause serious chaos in the market, reaffirming the importance of promoting the understanding of fails practices.
Going forward, while endeavoring to gain wider acknowledgement of fails practices, Japan needs to avoid frequent fails occurrence under low interest rate conditions like in the United States to ensure smooth settlement and control the balance of unsettled transactions. This goal requires establishing a preventive system to curb the frequency of fails. Based on this viewpoint, since May 2009, the WG has been discussing a review of current fails practices, particularly concerning the introduction of a fails charge. Attached is the Interim Report summarizing the discussions of the 1st (June 10) to 8th (October 7) meetings.