Treasury Market Practices Group (TMPG) Fails Charge
The Formal Definition
A standardized financial penalty recommended by the Treasury Market Practices Group and enforced across US sovereign debt clearing houses that penalizes a delivery-failing counterparty when a Treasury or agency security trade does not settle on its contractual settlement date.
TMPG Fails Charge Rate (%) = max [ 0.0%, min(3.0%, 3.0% - Target Fed Funds Rate) ]
Cole Barrett's Reality Check
The Unvarnished Bottom Line"In the Treasury market, failing to deliver bonds isn't a free pass. When interest rates were pinned near zero, clearing counterparties realized that failing to deliver collateral cost nothing, so trades stalled across Wall Street. The TMPG stepped in with the Fails Charge: if you fail to deliver Treasuries, you get fined up to 3% annualized for every day the settlement stalls."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: An institutional trade settling a $50,000,000 US Treasury block where the seller experiences a 5-day delivery fail in a 0.25% Fed Funds regime
| Execution Metric | Securities Lending Covered Seller | Delivery-Failing Dealer |
|---|---|---|
| Fee / Rate | Repo desk fee | $0 clearing penalty waiver |
| Spread / Buffer | Anticipated collateral shortages; borrowed matching CUSIP bonds via overnight repo to ensure clean settlement | Failed to source the bonds; failed on delivery to the buyer across 5 consecutive business days |
| Execution / Status | Delivered $50M in Treasuries on T+1; trade cleared through the FICC without a settlement hitch | FICC applied the TMPG formula: 3.0% - 0.25% = 2.75% annualized penalty rate |
| Total Cost / Result | Clean settlement via preemptive collateral sourcing | Incurred thousands in penalties for failing to deliver collateral |
How Brokers Weaponize This Term
When trading secondary Treasury bonds or repo lines, check the settlement confirmation for 'TMPG Fails Charge' line items. If your broker fails to deliver your purchased sovereign paper on time during low-rate regimes, you are contractually owed cash penalty credits from the failing dealer.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers: Provides direct institutional clearing integration with the Fixed Income Clearing Corporation (FICC), passing through TMPG fail credits directly.
Read Audit →Cole Flags / Avoids
Boutique Fixed-Income Desks: Often absorbs or fails to credit incoming TMPG fails penalties owed to clients when upstream counterparties fail to deliver bonds on time.
View Trap Details →Frequently Asked Questions
What happens if interest rates rise above 3.0%?
When the Target Fed Funds rate is 3.0% or higher, the TMPG formula yields 0%, meaning the fails charge drops to zero because higher market interest rates naturally incentivize counterparties to deliver collateral.
Does the TMPG fails charge apply to agency MBS?
Yes. The TMPG fails charge framework applies across US Treasuries, agency debt, and agency mortgage-backed securities (MBS).