District Circular Letters
June 29, 1998
NET SETTLEMENT:
PRIVATELY OPERATED MULTILATERAL
SETTLEMENT SYSTEMS
To Net Settlement Participants
in the Twelfth Federal Reserve District
Comprehensive Policy Statement on Multilateral Settlement Systems
(Docket
R-0987)
The Federal Reserve Board has adopted a revised Policy Statement on Privately
Operated Multilateral Settlement Systems. The statement updates and integrates
the Board's risk management policies for Privately Operated Large-Dollar
Multilateral Netting Systems and Private Small-Dollar Clearing and Settlement
Systems into a single, comprehensive policy statement.
The revised policy statement is effective January 4, 1999.
The policy statement will apply to privately operated multilateral settlement
systems that are expected to settle transactions with an aggregate gross
value of $5 billion or more on any day during a rolling twelve-month period.
The policy statement will apply to systems or arrangements for the settlement
of checks, automated clearing house (ACH) transfers, credit, debit, and
other card transactions, large-value interbank transfers, and foreign
exchange contracts involving the U.S. dollar. However, only a few of these
systems currently settle transactions with a gross daily aggregate value
in excess of $5 billion, thereby becoming subject to the requirements
of the policy upon its effective date.
The systems that are covered by the policy statement will be required
to address the credit, liquidity, operational, and legal risks associated
with their settlement activities, using a flexible, analytical approach
to risks and risk management. In addition, a few of these systems may
be required to meet the Lamfalussy Minimum Standards based on the Board's
determination, for example, that such systems settle a high proportion
of large-value interbank or other financial market transactions, generate
very large liquidity exposures that have potentially systemic consequences,
or generate systemic credit exposures relative to participants' financial
capacity.
In general, such systems are already subject to the Board's policy on
Privately Operated Large-Dollar Multilateral Netting Systems, which is
being integrated into the revised policy statement.
The revised policy statement is not intended to alter the Board's policy
with respect to these large-dollar systems. Further, the revised policy
statement is not intended to alter approvals by the Board for specific
clearinghouses to use the Federal Reserve Banks' Fedwire-based net settlement
service.
Copies
Copies of the Board's notice (Docket
R-0987) are available from our Corporate Services Department.
To request copies to be sent via mail, please call (415) 974-2748.
To request copies to be sent via fax, please call (415) 974-3333,
and specify document number 4148.
For Additional Information
For additional information regarding these matters, please contact Mr.
Sten Hedberg, Policy Consultant, Credit and Risk Management, at (415)
974-2174.
FEDERAL RESERVE BANK OF SAN FRANCISCO
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