[Federal Register Volume 61, Number 216 (Wednesday, November 6, 1996)]
[Notices]
[Pages 57433-57434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28355]


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FEDERAL RESERVE SYSTEM
[Docket No. R-0778]


Federal Reserve Bank Services

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice.

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SUMMARY: The Board has announced that, effective December 8, 1997, the 
Fedwire on-line funds transfer service will open at 12:30 a.m. Eastern 
Time five days per week (Monday through Friday). Previously, the Board 
determined that expansion of the Fedwire funds transfer service to 18 
hours per day could be a useful component of private-sector initiatives 
to reduce settlement risk in the foreign exchange markets and to 
eliminate an operational barrier to potentially important innovation in 
privately-provided payment and settlement services.

EFFECTIVE DATE: December 8, 1997.

FOR FURTHER INFORMATION CONTACT: Louise Roseman, Associate Director 
(202/452-2789), Jeff Stehm, Manager (202/452-2217), or Jeannine 
Butcavage, Financial Services Analyst (202/452-2225), Division of 
Reserve Bank Operations and Payment Systems, Board of Governors of the 
Federal Reserve System. For the hearing impaired only: 
Telecommunications Device for the Deaf, Dorothea Thompson (202/452-
3544).

SUPPLEMENTARY INFORMATION:

I. Background

    In February 1994, the Board approved an expansion of the operating 
hours for the Fedwire on-line funds transfer service to 18 hours per 
day, five days per week (Monday through Friday) beginning in 1997, with 
the specific implementation date to be announced approximately one year 
in advance of the effective date (59 FR 8981, February 24, 1994; 60 FR 
110, January 3, 1995). Beginning December 8, 1997, the Fedwire on-line 
funds transfer service will open at 12:30 a.m. and close at 6:30 p.m. 
Eastern Time.1, 2, 3 Participation in the earlier operating hours 
is voluntary.
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    \1\ The current operating hours for the Fedwire on-line funds 
transfer service are 8:30 a.m. to 6:30 p.m. Eastern Time, five days 
per week (Monday through Friday).
    2 All times referenced are Eastern Time unless otherwise 
noted.
    3 The earlier opening of the Fedwire on-line funds transfer 
service will not affect the opening time for the origination of and 
telephone advice of credit for Fedwire off-line funds transfers.
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    A 12:30 a.m. Fedwire opening time will overlap the entire European 
banking day and about two and one-half hours of the banking day in 
Tokyo. The Board believes that overlaps in operating hours among major 
financial centers will contribute to strengthened interbank settlement 
for cross-border markets. The closing time for the Fedwire funds 
transfer service will remain at 6:30 p.m. As discussed at length in the 
Board's February 1994 decision, the Board believes that the long-run 
benefits from offering final payment capabilities will strengthen 
interbank settlements and contribute to reductions in foreign exchange 
settlement risk through innovations in payment and settlement 
practices. In addition, the Fedwire funds transfer service will be an 
important tool for managing settlement risk early in the day during 
times of financial stress.

II. Implementation

A. Funds Transfer Business Day

    With the earlier opening time of the Fedwire funds transfer system, 
the Federal Reserve Banks' funds transfer business day for on-line 
transfers will begin with the opening of the Fedwire funds transfer 
system at 12:30 a.m. and end with its closing (typically 6:30

[[Page 57434]]

p.m.), Monday through Friday, except for specified holidays observed by 
the Federal Reserve Banks.4 For transfers originated during the 
very early hours, the Federal Reserve's funds transfer business day may 
differ from the calendar day on which a Fedwire participant sends or 
receives the transfer. For example, in the expanded operating hours 
environment, when a West Coast bank originates a Fedwire funds transfer 
on Tuesday at 10:00 p.m. Pacific Time (1:00 a.m. on Wednesday Eastern 
Time), its Federal Reserve Bank will deem that transfer to have 
occurred on its Wednesday funds transfer business day.
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    \4\  Uniform Commercial Code Article 4A-106(a) states that a 
receiving bank may fix a cut-off time(s) on a funds transfer 
business day for the receipt and processing of payment orders, and 
treat payment orders received after the close of a funds transfer 
business day as received at the opening of the next funds transfer 
business day.
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B. Opening Time Considerations

    While the Federal Reserve will establish 12:30 a.m. as the standard 
opening time for the Fedwire funds transfer service, lengthy extensions 
to the closing time on the previous day could delay the 12:30 a.m. 
opening for the next business day. The Federal Reserve, therefore, will 
limit lengthy closing time extensions of the Fedwire funds transfer 
system to only those necessary to prevent significant market 
disruptions.

C. Notification of Participation

    Some Fedwire participants have indicated to their Federal Reserve 
Banks that they would find useful a listing of depository institutions 
that plan to participate during the earlier hours. Participants stated 
that this information would help them to decide whether it would be 
beneficial to use their intraday liquidity to initiate certain Fedwire 
funds transfers during the earlier hours. To accommodate this request, 
the Federal Reserve will provide a list of earlier hour participants. 
This list will be updated regularly.
    The list of earlier hour participants will not be restrictive; 
consequently, depository institutions will be permitted to send on-line 
funds transfers during the earlier hours even if they are not on the 
Federal Reserve's list of participants. All depository institutions 
will receive any funds transfers sent to them during the earlier hours 
whether or not they choose to participate in the earlier hours.

D. Fees for Transfers Made During Earlier Hours

    During the 12:30 a.m. to 8:30 a.m. period, transaction fees for 
Fedwire funds transfers will be charged at the same level and in the 
same manner as transfers made during the 8:30 a.m. to 6:30 p.m. regular 
business hours.

E. Intraday Credit

    Federal Reserve intraday credit will be provided to Fedwire 
participants during the 12:30 a.m. to 8:30 a.m. period on the same 
basis that such credit is provided after 8:30 a.m. That is, eligible 
institutions may incur intraday overdrafts subject to the requirements 
of the Board's payment system risk policy. To adjust for the additional 
operating hours during the day, daylight overdraft fees for all Fedwire 
participants will be calculated based on an 18-hour Fedwire day rather 
than a 10-hour Fedwire day.5
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    \5\  An institution's overdraft charges are calculated daily and 
equal the gross overdraft charge less the amount of a deductible. 
The gross overdraft charge is the product of the nominal daily 
overdraft rate and the average overdraft. Because the nominal daily 
rate is based on the portion of the day that the Fedwire funds 
transfer system is open, the nominal daily rate will increase with 
an 18-hour day. However, the average overdraft calculated for a 
longer Fedwire day will correspondingly decrease for a given level 
of total overdrafts. Based on the current daylight overdraft rate, 
the annual rate will increase from 15 basis points for a 10-hour 
Fedwire day to 27 basis points for an 18-hour Fedwire day. At the 
same time, the number of minutes used to average end-of-minute 
overdrafts will increase from 601 to 1081. The deductible is equal 
to 10 percent of an institution's qualifying capital valued at an 
effective daily rate that will be fixed at 10 of 24 hours. This 
issue was addressed at length in the Board's 1992 announcement of 
daylight overdraft fees (57 FR 47084, October 14, 1992).
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    Posting times for some non-wire transactions are tied to the 
opening of the Fedwire funds transfer system.6 In order not to 
change the current effective posting times of these transactions, the 
Board's posting rules have been modified to continue to post these 
transactions at 8:30 a.m. Interest and redemption payments on U.S. 
Treasury and Government agency securities generally will be posted 
between 8:30 a.m. and 9:15 a.m.7
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    \6\ Specifically, these transactions include ACH credit 
transactions, advance notice Treasury investments, interest and 
redemption payments on state and local government series Treasury 
securities, and Treasury checks, postal money orders, local Reserve 
Bank checks, and EZ-Clear savings bond redemptions deposited by 
12:01 a.m. or a later local deadline.
    \7\  The posting rules indicate that these transactions will be 
posted ``by 9:15 a.m.''
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F. Policy Statement Changes

    As discussed above, the Board has adopted minor changes to the 
``Federal Reserve Policy Statement on Payments System Risk,'' effective 
December 8, 1997. In section (I)(A) (Federal Reserve Policy--Daylight 
Overdraft Definition), in the table labeled ``Modified Procedures for 
Measuring Daylight Overdrafts,'' the heading ``Post at the Opening of 
Fedwire Funds Transfer System'' is revised to read ``Post at 8:30 a.m. 
Eastern Time''. In section (I)(B) (Federal Reserve Policy--Pricing), 
the third sentence of the second paragraph is revised to read ``For 
example, under an 18-hour scheduled Fedwire operating day, the 
overdraft fee equals 27 basis points (36 basis points multiplied by 18/
24).''

    By order of the Board of Governors of the Federal Reserve 
System, October 30, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-28355 Filed 11-5-96; 8:45 am]
BILLING CODE 6210-01-P