ZagTrader

Securities settlement

MT548 PENF: why is my settlement failing?

Written and maintained by ZagTrader. Last reviewed . How this page is sourced and checked

:25D::SETT//PENF means the instruction did not settle on its intended settlement date and is now failing. The :24B::PENF// reason says what is missing, for example securities (LACK, CLAC) or cash (MONY, CMON). The instruction stays live and keeps being retried, but in the EU every business day of the fail now has a cash cost.

What it means

An account servicer moves an instruction from PEND to PENF once settlement on the intended settlement date is no longer possible. In practice this happens when the last settlement cycle for that date has closed. The instruction is not cancelled. The CSD keeps trying to settle it in every following cycle until it settles, is cancelled by both sides, or is cancelled by the system.

The reason codes under PENF are largely the same as under PEND, plus a few that only make sense after the date has passed, such as BYIY (a buy-in procedure has started) and MLAT (cover arrived too late for same-day settlement). Your side’s shortages read LACK or MONY; the counterparty’s read CLAC or CMON. CLAT means the counterparty instructed or fixed its problem too late.

In the EU, the CSD Regulation (CSDR) settlement discipline regime has applied cash penalties to failing instructions at EU CSDs since 1 February 2022. The CSD calculates them per instruction and per business day: a settlement fail penalty for each day a matched instruction stays unsettled after the intended settlement date, charged to the party that lacks the securities or the cash, and a late matching fail penalty, charged once for the whole period, to the party that instructed last when instructions match after the intended settlement date. An instruction left on hold after the intended settlement date is also penalised. The penalty goes to the counterparty that suffered the fail.

CSDs report penalties to their participants daily and collect and pay them out monthly, following the ECSDA penalties framework; the ISO 20022 message used for these reports is semt.044. Your custodian passes the amounts on to you in its own reports. Outside the EU, costs depend on the market: interest claims, overdraft charges, buy-in rules and local fines are set by each market and are not covered here.

In T2S, a matched instruction that still has not settled 60 business days after it was received or last modified is cancelled by the system (this rule has applied since 5 October 2020). Fails therefore need active follow-up; they do not resolve themselves.

Common causes

  • The deliverer lacks securities: an unsettled covering purchase, securities lent out, blocked or held in the wrong account. Reasons LACK on your side, CLAC on the counterparty’s. See PEND LACK.
  • The receiver lacks cash or credit: an unfunded cash account, a credit line exhausted, or a missing FX instruction. Reasons MONY, CMON and NOFX.
  • One of the instructions is on hold, by the participant or by the CSD: reasons PREA (yours), PRCY (counterparty’s), BOTH, CSDH or CVAL.
  • A linked or back-to-back instruction has not settled: LINK or LAAW.
  • A late instruction or late correction: the trade was matched only after the cut-off or after the intended settlement date. Reasons LATE, CLAT or MLAT.
  • Quantity rules: a quantity below the minimum or not a multiple of the tradeable lot (MINO, MUNO), or partial settlement not allowed while only part of the position is available.

How to fix it

  1. Read the reason in :24B::PENF// and decide whose side it is on. CLAC, CMON, CLAT and PRCY point at the counterparty; LACK, MONY and PREA point at you; CSDH and CVAL mean the CSD itself is holding the instruction.
  2. If it is on your side, fix it today: fund the cash account, release the hold, move or borrow the securities, or chase your own covering trade. Each further business day of the fail adds a penalty in the EU.
  3. If it is on the counterparty’s side, chase them with the trade reference and the reason code, and ask for an expected settlement date. Consider whether partial settlement would help both sides.
  4. Check your linked trades. A failed receipt often causes your own onward delivery to fail; prioritise or link instructions so that the receipt settles first.
  5. Reconcile the penalty reports your custodian sends against the fails you recorded. Each penalty should match a failing instruction, its reason and the number of days. Query wrong amounts within the appeal window your custodian or CSD sets.
  6. If the fail cannot be resolved, agree with the counterparty to cancel both instructions (a matched instruction needs both sides to cancel) and settle the trade another way, rather than letting the system cancel it unseen.

Example

The day after the intended settlement date, the custodian tells ZagTrader Test Bank that its receipt against payment is failing because the counterparty does not have the securities.

{1:F01CUSTGB2LAXXX0000000000}{2:I548ZAGTAEADXXXXN}{4:
:16R:GENL
:20C::SEME//ST26102300207
:23G:INST
:98C::PREP//20261023070000
:16R:LINK
:13A::LINK//541
:20C::RELA//ZT26102000033
:16S:LINK
:16R:STAT
:25D::MTCH//MACH
:16S:STAT
:16R:STAT
:25D::SETT//PENF
:16R:REAS
:24B::PENF//CLAC
:16S:REAS
:16S:STAT
:16S:GENL
:16R:SETTRAN
:35B:ISIN AEZAGT000024
ZAGTRADER TEST PROPERTIES PJSC
:36B::SETT//UNIT/40000,
:19A::SETT//AED226000,00
:97A::SAFE//ZAG-SAFE-0001
:22F::SETR//TRAD
:22H::REDE//RECE
:22H::PAYM//APMT
:98A::SETT//20261022
:98A::TRAD//20261020
:16R:SETPRTY
:95P::PSET//CSDXAEADXXX
:16S:SETPRTY
:16R:SETPRTY
:95P::DEAG//BRKRAEADXXX
:16S:SETPRTY
:16S:SETTRAN
-}
Open this example in the parser

The settlement date in :98A::SETT (22 October) is before the preparation date (23 October), which is why the status is PENF rather than PEND.

CLAC puts the fail on the counterparty. Under CSDR (for an EU CSD) the settlement fail penalty would be charged to the deliverer and paid to the receiver.

Questions

What is the difference between PEND and PENF?
PEND means settlement on the intended date is still possible. PENF means that date has passed or can no longer be met, so the trade is failing. The reason codes are mostly the same; the cost is not, because fail penalties and claims start once the date is missed.
Since when do CSDR cash penalties apply?
Since 1 February 2022, for instructions settling at CSDs in the EU. They are calculated daily for each failing instruction and collected and redistributed monthly through the CSDs.
Who pays the penalty when my counterparty lacks securities?
The failing party. With CLAC the deliverer is short, so the settlement fail penalty is charged to the deliverer and paid to you as the receiver. With a late matching fail it is the party whose instruction arrived last.
Does a PENF instruction get cancelled automatically?
Not straight away. The CSD keeps retrying it. In T2S a matched instruction is cancelled by the system once it has stayed unsettled for 60 business days after it was received or last changed. Other CSDs have their own rules.
Where is the failing status in ISO 20022?
In sese.024 under SttlmSts/Flng, with the reason in SttlmSts/Flng/Rsn/Cd/Cd. The settlement itself is later confirmed in sese.025 or, in MT, MT544 to MT547.

Messages involved

All troubleshooting · Guides · Codes