WASHINGTON, Nov 7 (Reuters) - The U.S. Treasury said on Friday investment funds must report large holdings of two recent 2-year and 5-year note issues as part of efforts to curb the rising incidence of failed trades. The Treasury said holders of $2 billion or more of 2-percent notes maturing September 30, 2010 and 3-1/8-percent notes maturing September 30, 2013 are being required to disclose their positions as of Thursday to the Federal Reserve Bank of New York. The reports are due by Nov. 14. The disclosures will help the Treasury assess market conditions that have led to an increasing number of trades that have failed because the seller has not delivered the agreed securities, a Treasury official said. The Treasury warned on Wednesday that brokers and other market participants must implement measures to prevent failed trades or the Treasury will consider new regulatory measures. Friday's action appeared to be another step to put pressure on market players. "We're confident that the Treasury Market Practices Group and the Secruities Industry and Financial Markets Association will implement steps to mitigate such fails in the future," the Treasury official said. "This is to get more information on what's going on in the market." The official said fails, which tend to increase in low-interest-rate environments, hurt trading and market liquidity by reducing confidence in a counterparty's ability to deliver securities. As a result, some financial institutions could see their capital levels hurt by losses on such failures. The Treasury has separately been working on a $250 billion program to inject new equity into banks. The securities for which large positions must be reported carry the CUSIP numbers 912828JL5 and 912828JM3. (Reporting by David Lawder, Editing by Chizu Nomiyama)

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