[Federal Register Volume 64, Number 54 (Monday, March 22, 1999)]
[Notices]
[Pages 13799-13800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6865]


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FEDERAL RESERVE SYSTEM

[Docket No. R-1035]


Policy Statement on Payments System Risk; Modification to the 
Procedures for Measuring Daylight Overdrafts for Net Settlement Entries 
Processed Through the Enhanced Settlement Service

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Policy statement.

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SUMMARY: The Board has modified the daylight overdraft posting rules to 
include the posting time for settlement entries processed through the 
enhanced settlement service. Also, the footnote numbering scheme will 
be changed to eliminate the duplication of footnote reference numbers 
and allow for continuous footnote numbering.

EFFECTIVE DATE: March 29, 1999.

FOR FURTHER INFORMATION CONTACT: Myriam Payne, Manager (202/452-

[[Page 13800]]

3219), or Stacy Panigay, Financial Services Analyst (202/452-2934), 
Division of Reserve Bank Operations and Payment Systems; for the 
hearing impaired only: Telecommunications Device for the Deaf (TDD), 
Diane Jenkins (202/452-3544).

SUPPLEMENTARY INFORMATION:

Background

    When the Board modified the Payments System Risk Reduction policies 
in 1992 (57 FR 47093, October 14, 1992), it adopted a set of posting 
rules which comprise a schedule for the intraday timing of debits and 
credits to institutions Federal Reserve accounts for different types of 
payments. The implementation of these rules along with the imposition 
of fees for daylight overdrafts were part of the Board's program to 
induce behavioral changes to control risk and increase efficiency in 
the payments system. In accordance with the posting rules adopted in 
1992, net settlement entries currently are posted throughout the 
business day after the settlement entries are received by the Reserve 
Banks.

Analysis of Federal Reserve Net Settlement Services

    Currently the Federal Reserve offers two types of net settlement 
services, the settlement sheet service and the Fedwire-based service. 
In the traditional settlement sheet service, the settlement entries are 
posted throughout the business day on the next clock hour approximately 
one hour after settlement data are received by the Reserve Banks. The 
Reserve Banks, however, do not provide settlement finality until the 
business day after the settlement day. The Reserve Banks reserve the 
right to reverse settlement debits and credits if a participant is 
unable to cover its settlement debit.
    Settlement entries from the Fedwire-based service are posted as 
they are processed. In the Fedwire-based service, individual 
participants with net debit positions send Fedwire funds transfers to a 
settlement account at a designated Reserve Bank. Once funds transfers 
have been received into the settlement account to cover all net debits, 
the clearing arrangement's agent sends Fedwire funds transfers from the 
settlement account to the accounts of participants in net credit 
positions. Under normal circumstances, this process is completed on the 
settlement day. Because the service uses Fedwire funds transfers, 
settlement payments are final and irrevocable on the settlement day.
    In 1998, the Board approved an enhanced settlement service that 
combines and improves selected features from the Reserve Banks' 
existing net settlement services and may be used for either gross or 
net multilateral settlements. The service is fully automated and 
provides finality of settlement intraday on the settlement day to 
participants in clearing arrangements using the service. In addition, 
the enhanced service enables the Reserve Banks to manage and limit risk 
by incorporating risk controls that are as robust as those used 
currently in the Fedwire-based net settlement service. Settlement 
entries processed by the enhanced settlement service will be posted on 
a flow basis as they are processed and are final and irrevocable. 
Unlike participants using the Fedwire-based service, participants using 
the enhanced settlement service do not have to rely on the initiation 
of individual Fedwire funds transfers to conduct settlement. This 
feature reduces the logistical complexity for certain clearing 
arrangements.
    The Federal Reserve expects most clearing arrangements using its 
net settlement services to migrate to the enhanced settlement service. 
At the end of 2001, the settlement sheet service will no longer be 
offered; clearing arrangements using the settlement sheet service that 
want to continue settling through the Federal Reserve will have to 
migrate to the enhanced settlement service. The Fedwire-based service 
will be available so long as there is reasonable demand for the 
service.

Policy Statement on Payments System Risk

    The Federal Reserve System Policy Statement on Payment System Risk 
is amended by removing reserved footnote 3; by renumbering footnotes 1 
through 4 under the headings ``I. Federal Reserve Policy,'' ``Modified 
Procedures for Measuring Daylight Overdrafts'' as footnotes 3 through 6 
and revising redesignated footnote 4 to read as follows; and by 
renumbering remaining footnotes 4 through 24 as footnotes 7 through 29.
I. Federal Reserve Policy
A. Daylight Overdraft Definition
* * * * *
Modified Procedures for Measuring Daylight Overdrafts \3\
* * * * *
Post Throughout Business Day:
* * * * *
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    \3\ * * *
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    +/- Fedwire funds transfer
    +/- Fedwire book-entry securities transfers
    +/- Net settlement entries \4\
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    \4\ Settlement entries from the ``settlement-sheet'' service 
will be posted on the next clock hour approximately one hour after 
settlement data are received by the Reserve Banks. The settlement-
sheet service will be discontinued by year-end 2001. Settlement 
entries from the enhanced settlement service will be posted on a 
flow basis as they are processed.
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* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, March 16, 1999.
Jennifer Johnson,
Secretary of the Board.
[FR Doc. 99-6865 Filed 3-19-99; 8:45 am]
BILLING CODE 6210-01-P