What is ‘Fail’
In common trading terms, if a seller does not deliver securities or a buyer does not pay owed funds by the settlement date, then the transaction is said to fail. In a stock exchange, this occurs if a stockbroker does not deliver or receive securities, within a specified time after a security sale or a security purchase. When a seller cannot deliver the contracted securities, this is called a short fail. If a buyer is unable to pay for the securities, this is called a long fail.
Explaining ‘Fail’
Presently, firms have three days after the date of a trade to settle stock transactions. Within this time frame, securities and cash must be delivered to the clearing house for settlement. If firms are unable to meet this deadline, a fail will occur. Settlement requirements for stock, options, futures contracts, forwards and fixed-income securities differ.
Fail is also used as a bank term when a bank is unable to pay its debt to other banks. The inability of one bank to pay its debt to other banks in interbank fund transfer systems, can potentially lead to a domino effect, causing several banks to become insolvent.
Further Reading
- The capital asset pricing model (CAPM): the history of a failed revolutionary idea in finance? – onlinelibrary.wiley.com [PDF]
- Why finance theory fails to survive contact with the real world: a fund manager perspective – www.sciencedirect.com [PDF]
- Why interest‐free banking and finance movement failed in Pakistan – www.emerald.com [PDF]
- The SIFIS:“Too Big to Fail” or “Too Connected To Fail”-An Analysis of China's Banking Sector [J] – en.cnki.com.cn [PDF]
- An empirical comparison of published replication research in accounting, economics, finance, management, and marketing – www.sciencedirect.com [PDF]
- Explaining settlement fails – papers.ssrn.com [PDF]
- Moral hazard and Its Prevention in Too-big-to-fail of Financial Institutions [J] – en.cnki.com.cn [PDF]
