[Federal Register: March 22, 1999 (Volume 64, Number 54)] [Notices] [Page 13799-13800] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr22mr99-79] ----------------------------------------------------------------------- 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. ----------------------------------------------------------------------- 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: * * * * * --------------------------------------------------------------------------- \3\ * * * --------------------------------------------------------------------------- +/- Fedwire funds transfer +/- Fedwire book-entry securities transfers +/- Net settlement entries \4\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- * * * * * 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