[Federal Register Volume 63, Number 70 (Monday, April 13, 1998)]
[Notices]
[Pages 18022-18027]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9665]
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FEDERAL RESERVE SYSTEM
[Docket No. R-0866]
Federal Reserve Bank Services
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
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SUMMARY: The Board has decided to not implement an earlier opening time
for the Fedwire securities transfer service at this time due to the
anticipated cost and technical hurdles identified by various industry
participants and concerns expressed by the Treasury. These concerns may
decline in the future as participants improve their internal operating
environments (e.g., by implementing real-time and straight-through
processing and better contingency availability) and gain experience
with expanded Fedwire funds transfer operating hours. The Board will
monitor developments associated with expanded Fedwire funds transfer
hours as well as developments in U.S. government securities settlement
practices and, if market demand for transferring government securities
earlier in the day increases or the related cost or operational burden
declines materially, the Board, in consultation with the Treasury, will
reconsider the desirability of opening the Fedwire securities transfer
service earlier in the day.
The Board also has approved the introduction of an optional
automatic reversal feature for institutions that access the National
Book-Entry System via a Fedline connection. The Board believes that the
availability of automated receiver control features in the National
Book-Entry System would provide these participants with additional
flexibility to manage the receipt of misdirected or incorrect
securities transfers and any associated debits to their account holding
reserve or clearing balances. This feature likely will be made
available to Fedline participants during 2000. Once an implementation
schedule is finalized, the Reserve Banks will notify depository
institutions regarding the specific date that the receiver control
feature will be available to Fedline participants.
FOR FURTHER INFORMATION CONTACT: Louise L. Roseman, Associate Director
(202/452-2789), Jeff Stehm, Manager (202/452-2217), or Lisa Hoskins,
Project Leader (202/452-3437), 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,
Diane Jenkins (202/452-3544).
SUPPLEMENTARY INFORMATION:
I. Background
In February 1994, the Board announced approval of an expansion of
the operating hours for the Fedwire on-line funds transfer service to
18 hours a day, from 12:30 a.m. to 6:30 p.m. Eastern Time, beginning in
1997 (59 FR 8981, February 24, 1994; 60 FR 110, January 3,
1995).1 2 In that announcement, the Board
concluded that expanded Fedwire funds transfer operating hours could be
a useful component of private-sector initiatives to reduce settlement
risk in the foreign exchange markets and would eliminate an operational
barrier to potentially important innovation in privately provided
payment and settlement services.
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\1\ All times are Eastern Time unless otherwise noted.
\2\ These operating hours became effective on December 8, 1997.
(61 FR 5433, November 6, 1996).
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Following its action on expanding Fedwire funds transfer operating
hours,
[[Page 18023]]
the Board requested comment in January 1995 on: (1) the potential
benefits, costs, and market implications of opening the on-line Fedwire
securities transfer service earlier in the day on a voluntary basis;
(2) new service capabilities that would allow depository institutions
to control their use of intraday credit during expanded and/or core
business hours; and (3) a proposal to establish a firm closing time for
the Fedwire securities transfer service (60 FR 123, January 3, 1995).
Effective January 2, 1996, the Board adopted a firm closing time for
the Fedwire securities transfer service of 3:15 p.m. for transfer
originations and 3:30 p.m. for reversals (60 FR 42410, August 15,
1995).
The Board received 36 responses to the request for comment. About
60 percent of the commenters were commercial banks or bank holding
companies, including banks that provide government securities clearing
and settlement services to dealers and other firms. The number of
commenters by type of organization were as follows:
Commercial Banking Organizations 3............................. 21
Credit Unions.................................................. 2
Broker/Dealers................................................. 2
Clearing House Associations.................................... 2
Clearing Organizations......................................... 1
Trade Associations............................................. 3
Federal Home Loan Banks........................................ 2
Federal Reserve Banks.......................................... 2
State Governments.............................................. 1
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Total public comments...................................... 36
3 Banks, bank holding companies, and operating subsidiaries of banks or
bank holding companies.
II. Earlier Opening of the Fedwire Securities Transfer Service
A. Potential Costs
Twenty-three commenters discussed the potential costs associated
with earlier operating hours. Seventeen commenters indicated that the
potential costs would outweigh the potential benefits; however, three
of these commenters indicated that costs would exceed benefits only in
the short term. Five other commenters, including the New York Clearing
House (NYCH), indicated that the long-term benefits to the payments
system outweigh the expense of implementing and maintaining expanded
hours of operation for the Fedwire securities transfer service.
The Public Securities Association (PSA), NYCH, Chemical Bank, and
other commenters indicated that the amount of change and associated
expense that may be required to participate during earlier operating
hours would be significant.\4\ In particular, a number of active
government securities market participants argued that the efficiencies
envisioned by the Board would not offset the substantial operating and
systems costs (including daylight overdraft charges) that would be
incurred by participants if the operating hours were to be expanded.
The NYCH also indicated that some costs associated with earlier hours
would be difficult to measure. For example, most of the transfers
processed via the Fedwire securities transfer system are done in
support of domestic dealer activity. The NYCH expressed concern that
expanding the hours for these dealer operations would most likely
either spread over 15 hours what is now done in 7 hours or allow
trading to increase in velocity; in its opinion, neither result would
be beneficial.
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\4\ The comments were received prior to Chemical Bank's merger
with Chase Manhattan Bank, N.A. and prior to PSA's formal name
change to the Bond Market Association.
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Chemical Bank, Chemical Securities, Inc. (CSI), First Chicago
Corporation (First Chicago), and others indicated that, in order to
have the capability to participate during substantially longer Fedwire
securities transfer operating hours, they would need to make
significant capital investments to re-engineer dealer clearance
systems, reduce the length of overnight batch processing cycles, and/or
redesign systems from a batch to a real-time
environment.\5\, \6\ Commenters' cost estimates for such
system changes ranged from $750,000 to $2 million. In addition, some
commenters indicated that ongoing operating expenses would increase as
a result of expanded operating hours.
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\5\ Chemical Bank indicated that its dealer clearance system
operates from 5:00 a.m. to 10:00 p.m. each day to handle customers'
transaction loading before the start of the day, reconcilement,
collateralizations (tri-party repo transactions), and report
generation. In addition, there is an overnight processing cycle
(five hours), which involves the creation of end-of-day database
back-ups, generation of reports on microfiche, acquiring and loading
security price information for next-day transactions, and preparing
the databases to be in a start position for the next business day.
\6\ The comments were received prior to First Chicago's merger
with NBD Bancorp.
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Commenters indicated that expansion of Fedwire securities transfer
operating hours would also require changes to systems other than a
participant's securities clearance system. Specifically, PSA indicated
that organizations such as the Government Securities Clearing
Corporation (GSCC) and Depository Trust Company (DTC) would have to
upgrade their systems so that all necessary data could be received and/
or transmitted within a compressed cycle. PSA and CSI indicated that
information important to the settlement process that is received from
the GSCC, pricing services, and rating services, for example, typically
is not available to market participants until after 12:30 a.m.\7\ In
addition, PSA noted that dealers also use the current overnight batch
processing cycle to perform risk measurement and analysis for over-the-
counter derivatives and other transactions. PSA indicated that there is
a chance that this risk management process would be compromised by
attempting to shorten the current batch processing cycle in order to
participate in an earlier opening of Fedwire. Commenters also indicated
that personnel costs would be affected by earlier hours. The NYCH,
Chemical Bank and others indicated that additional staffing would be
required to manage the systems, deal with credit issues, manage
compliance, and handle exception processing during earlier hours.
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\7\ In March 1997, GSCC announced its long-range plans for
achieving the industry objectives of straight-through processing and
point-of-trade guarantee. GSCC is considering important processing
changes, including the move to real-time processing, which would
reduce the amount of batch processing that occurs overnight.
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Finally, potential increases in securities-related daylight
overdraft charges were a common concern. Chemical Bank observed that
the earlier opening time would extend the period during which Chemical
could incur daylight overdrafts. Aubrey Lanston, a securities broker/
dealer, expressed concern that costs, particularly daylight overdraft
charges, resulting from an earlier opening time would increase
substantially at a time when the industry is trying to contain and
reduce its expenses. Some commenters and Treasury officials expressed
concern that any increased costs would be passed on to Treasury in the
form of lower prices for Treasury securities, thus increasing borrowing
costs.
B. Attempts To Reduce Potential Burden of a Substantially Earlier
Opening Time
To mitigate the potential burden of earlier operating hours for
participants, the Board requested comment on the feasibility of making
participation voluntary during the early hours. Commenters indicated
that participation in expanded Fedwire securities transfer hours must
be voluntary because of (1)
[[Page 18024]]
the significant costs many market participants would have to incur to
develop the capability to participate during substantially longer
operating hours, and (2) the risk that receipt of Fedwire delivery-
versus-payment (DVP) securities transfers may trigger overdrafts in
receiving banks' accounts, which would require all participants to
monitor their accounts during the off-hours even if they do not have a
business need to participate in the securities transfer service during
these hours. Commenters, however, had differing views regarding the
design of a mechanism to ensure voluntary participation. Some
commenters also believed that competitive pressures would compel firms
to participate in expanded hours despite the lack of demonstrated
business demand.
One approach the Board considered to mitigate the potential burden
of earlier operating hours for participants was to make participation
voluntary during the early hours by requiring institutions to
affirmatively ``opt-in'' to send and receive DVP transfers during this
period. Twenty-seven commenters agreed that participants should have
the ability to ``opt-in'' to the earlier operating hours if they are
adopted. The commenters, however, had differing views on the design of
an ``opt-in'' capability. Nineteen commenters believed that this
ability should be available at the securities account level, rather
than at the participant (depository institution) level.\8\ Many
commenters, including Northern Trust Company and Trust Company Bank,
observed that banks have dramatically different levels of securities
transfer activity among their various Fedwire securities accounts. For
example, while there may be a need to transfer securities against
payment for investment purposes during earlier operating hours, there
may be no similar need with respect to customer securities held for
safekeeping.
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\8\ A securities account is an account at a Reserve Bank
containing book-entry securities held for a participant. A
participant may use different securities accounts (e.g., trust,
investment, and dealer) to segregate securities held for different
purposes.
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While most commenters preferred establishing the opt-in feature at
the securities account level, several active market participants
suggested that opt-in should be permitted at the clearance customer
level (e.g., individual dealer level). Chemical Bank indicated that it
would otherwise have to enhance its dealer clearance system to exclude
selectively those customers that choose not to send/receive DVP
transfers during earlier hours, which would result in additional
expense for the bank.
In response to industry concerns about technical complexity and
increased cost associated with expanded operating hours, the Board
considered expanding the operating hours in the near term to permit
free deliveries only beginning at 12:30 a.m., with a longer lead time
to enable participants to make necessary changes for DVP transfers. The
receipt of ``free'' Fedwire securities transfers (e.g., non-DVP
transfers) does not raise the same concerns as receipt of DVP transfers
because free transfers do not involve a debit to the receiver's funds
account at the Reserve Bank and, therefore, cannot trigger or increase
an overdraft in the receiving bank's account. While many participants
may not have a business need to engage in DVP transfers before the
current 8:30 a.m. opening of business, the Boston Clearing House and
others indicated that some participants may have a business need prior
to 8:30 a.m. to reposition securities collateral among their own
securities accounts or to deliver securities as collateral to another
participant without engaging in a DVP transfer. Some major market
participants, however, expressed concern about the technical
complexities of segregating free versus DVP transfers within their
securities clearance systems. That is, they indicated it would be at
least as difficult to program systems to permit processing of free
transfers only during earlier hours as it would to make the necessary
changes to enable full participation (e.g., free and DVP transfers)
beginning at 12:30 a.m. Therefore, the Board concluded that it would
not be useful to expand the securities transfer operating hours for
free transfers only.
Some commenters also indicated that they would require substantial
lead time (e.g., at least eighteen months) to streamline their back-
office processing systems to enable them to participate in a
significantly longer Fedwire securities transfer operating day. Several
commenters suggested that the expansion of operating hours should be
phased in over time, but recommended different implementation periods.
C. Potential Benefits of Earlier Operating Hours
In its January 1995 notice, the Board described several potential
benefits or market responses to earlier Fedwire securities transfer
operating hours: (1) Access to funding and collateral to support other
market activities during earlier hours; (2) shorter times between trade
and settlement for cross-border transactions involving U.S. government
securities; and (3) availability of an important risk management tool
to the financial markets during periods of financial stress. Eighteen
of twenty-six commenters that discussed the potential benefits agreed
that an earlier Fedwire securities transfer opening time would yield
these benefits. Several commenters, however, argued that such benefits
may only be realized in the long term or would only accrue to a limited
number of participants. Eight commenters did not believe earlier
Fedwire securities transfer operating hours would result in the
benefits noted by the Board.
The NYCH observed that earlier book-entry hours may enable banks
and other financial firms to move securities during non-traditional
hours to obtain the liquidity necessary to support the settlement of
financial transactions, especially those related to foreign exchange
transactions. For example, efforts are currently underway by a private-
sector group of U.S. and foreign banks to establish a continuous link
settlement system that will reduce foreign exchange settlement risk for
banks. Such a mechanism may require significant amounts of dollar
liquidity in ``off-hours.'' Bank of America noted that given such
initiatives, it is inevitable that payment systems, including the
Fedwire securities transfer service, will be required to open earlier.
In addition, to the extent that a complementary interrelationship
exists between funds transfers that are made over the Fedwire funds
transfer service and repo transactions that settle over the Fedwire
securities transfer service, some banks (including those represented by
the NYCH) believe that the ability to move both funds and securities
during the same time period would result in more efficient overall
liquidity management and more efficient markets. Therefore, increasing
the overlap in operating hours for the Fedwire securities transfer
service and the Fedwire funds transfer service may create a more
efficient overall mechanism for those market participants that use
Fedwire-eligible securities as a liquidity vehicle. Some commenters,
however, indicated they were skeptical about the ability to obtain
liquidity during off-hours from securities transfers. These commenters
stressed the fact that most U.S. government securities are already
pledged under a repurchase agreement for the purpose of overnight
funding, and unwinding these overnight transactions to obtain early-
hours liquidity would require changes in current market practices and
impose
[[Page 18025]]
significant costs on overnight borrowers, primarily dealers.
The Board of Trade Clearing Corporation (BOTCC) observed that in
order to secure, reduce, or hedge various financial risks adequately,
banks and other firms increasingly require the support of systems that
move collateral on a final basis as close as possible to the time that
an exposure is created. Bank of America, First Chicago, and the NYCH
each indicated that earlier Fedwire securities transfer hours would
give market participants the ability to move on a more timely basis
U.S. government securities as collateral for a variety of secured
transactions in domestic and international markets, thus permitting a
more efficient use of collateral. Early opening of the Fedwire
securities transfer service along with the Fedwire funds transfer
service, therefore, may provide the opportunity for members to obtain
funds or credit from their banks and for the clearinghouses' settlement
banks to obtain those funds from their members at an earlier hour.
U.S. government securities also serve as a source of collateral in
an international or global payment operations context. For example,
Bank of America indicated that for U.S. banks participating in foreign
payment and settlement systems, earlier book-entry hours would allow
the pledging of U.S. government securities within the foreign country's
working day and would not limit U.S. banks to pledging only foreign
securities. This may become particularly important if U.S. Treasury
securities become eligible to secure intraday credit extensions on
European payment systems. The NYCH added that parties would be able to
shift collateral to cover settlements in several systems or provide
collateral to secure foreign borrowings, thus avoiding the excessive
cost of maintaining separate or ``sterile'' pools of collateral for
each local market or clearing arrangement. U.S. government securities
are also a growing aspect of the international securities
depositories--Euroclear and Cedel. Both of these systems operate during
the European business day, and the ability to move U.S. government
securities into and out of these systems throughout their business day
may allow participants to use their collateral resources more
efficiently. In addition, evolving multilateral netting arrangements
for foreign exchange transactions are designed to operate on a 24-hour
basis and rely on collateral (including U.S. Treasury securities) as a
critical component of the risk management process.
An earlier opening of the Fedwire securities transfer service also
may provide opportunities for internationally active market
participants to better control settlement risks associated with U.S.
government securities transactions executed off-shore by shortening the
settlement window. \9\ In particular, by opening the Fedwire securities
transfer service at 12:30 a.m., market participants in London and Tokyo
would have greater opportunities to settle transactions during their
local business day. The PSA, however, expressed concern that while an
earlier opening would trim a few hours off of the settlement cycle,
banks and dealers would incur substantial costs for daylight overdrafts
and system upgrades in order to participate during the earlier hours.
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\9\ For a fuller description of off-shore trading in U.S.
Treasury securities, see Michael J. Fleming, ``The Round-the-Clock
Market for U.S. Treasury Securities,'' Federal Reserve Bank of New
York Economic Policy Review, July 1997.
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The liquidity and risk management benefits of earlier book-entry
hours may be particularly important in times of market stress, when
obtaining liquidity, hedging exposures, and moving collateral may be
critical to containing counterparty and systemic risks. In this regard,
the BOTCC commented that the routine availability of the Fedwire
securities transfer system during earlier hours would encourage
participants to establish operational procedures and systems to support
the earlier operating hours; in turn, this would help ensure the
reliability of the service during times of market stress.
D. Outlook for Earlier Operating Hours
Although the Board believes that an earlier opening time for the
Fedwire securities transfer service could result in long-term benefits,
it recognizes that many Fedwire participants are faced with other
important technological initiatives, including year-2000 compliance and
preparations for straight-through processing. The Board also recognizes
that many market participants would require considerable lead time and
could incur substantial costs to upgrade their systems and clearing
processes to accommodate a significantly earlier opening time.\10\
These changes are likely to be substantially more complex than the
changes required to participate in earlier Fedwire funds transfer
operating hours. In particular, these changes would likely involve
adjustments in market funding and trading practices as well as the
operations of GSCC and the clearing banks. The Board will monitor
developments associated with expanded Fedwire funds transfer hours as
well as developments in U.S. government securities settlement
practices, and, if market demand for transferring government securities
earlier in the day increases or the related cost or operational burden
declines materially, the Board will seek additional public comment and
reconsider the desirability of opening the securities transfer service
significantly earlier in the day. Even if strong market demand
develops, however, it is unlikely that the Federal Reserve, in
consultation with the Treasury, would open the securities transfer
service significantly earlier before the year 2002 due to the lead time
identified by market participants that would be required and the
resources currently being devoted to year-2000 compliance efforts. In
the meantime, the Board encourages market participants to focus on
streamlining their end-of-day processing to position their
organizations for potential expanded hours in the future as well as to
obtain other operational benefits, including enhanced contingency
capabilities.
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\10\ The Board believes that, at least initially, only a small
number of Fedwire securities transfer service participants, which
may represent a large proportion of total volume, would likely have
a business need to participate during these expanded hours. First
Chicago and the NYCH suggested that the overall population of
potential users of DVP transfers during earlier hours is likely to
be less than 25 banks nationwide.
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III. Receiver Control Features
In its January 1995 notice, the Board discussed and requested
comment on several possible new receiver control features for low to
medium volume on-line participants that could be incorporated into the
Federal Reserve's centralized securities transfer application known as
the National Book-Entry System (NBES).\11\ In general, receiver
controls would involve the comparison of incoming securities transfers
against receipt instructions that are input by the receiving bank into
the NBES. Based on this comparison, the NBES could be designed to take
one of the following actions: (1) notify the receiving bank that an
incoming transfer does not match its receipt instructions; (2)
automatically reverse the unmatched transfer from the receiving bank's
account to the sending bank's account;
[[Page 18026]]
or (3) automatically reject the unmatched transfer prior to receipt by
the receiving bank. Comments were requested on each of these potential
receiver control features.
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\11\ Currently, the NBES provides a limited matching feature
that compares incoming transfers with pre-entered receipt
instructions. When activated, this feature identifies incoming
transfers as ``matched'' or ``not matched,'' notifies the receiving
participant accordingly, and, if so instructed by the participant,
re-delivers (or turns around) ``matched'' securities automatically
to another participant. Fedline participants can activate this
feature as needed.
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Eighteen comments were received on the receiver control feature. In
general, smaller banks supported receiver controls as a means to
prevent the delivery of misdirected and/or incorrect DVP transfers,
and, thus, control better their use of securities-related intraday
credit. Larger banks expressed concern that if the receiving
participant failed to input receipt instructions in a timely or correct
manner, transfers would be inappropriately returned to the sender,
delaying the settlement of legitimate transfers or leading to the
potential abuse of receiver control tools.
The Board believes that receiver controls limited to participants
that have Fedline connections to Fedwire would be a desirable feature
for the Fedwire securities transfer service and would be unlikely to
result in the difficulties expressed by some
commenters.\12\,\13\ Fedline participants send and receive
relatively small numbers of Fedwire securities transfers and use very
limited amounts of Federal Reserve intraday credit, thus the likelihood
of any systemic or gridlock effects from the use of the feature would
be low.\14\ In addition, restricting its use to Fedline participants
would address the concerns of certain commenters that the use of an
automatic reversal feature by large-volume computer-interface
participants could result in the delay of transfers and potential
gridlock. The use of the automatic reversal feature also may be limited
by the Federal Reserve, at any time, in the unlikely event that any
adverse market consequences result from its use.
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\12\ Fedline is the Federal Reserve's proprietary communications
software used by depository institutions with a PC-based electronic
connection to the Federal Reserve. Depository institutions may also
connect electronically to Fedwire through a computer-interface
connection, which links the depository institution's mainframe
computer to the Federal Reserve's mainframe computer.
13 Small volume, off-line Fedwire participants are
required to provide receipt instructions for any anticipated
incoming securities transfers. (A participant is considered ``off-
line'' if it does not have an electronic connection to the NBES;
instead, such participants provide instructions to the Reserve Banks
via telephone or in writing.) If such instructions are not provided
or the instructions do not match the incoming securities transfer,
the NBES will automatically reverse the transfer to the sender.
Large-volume computer-interface Fedwire participants generally have
the capability in their internal securities transfer systems to flag
unmatched transfers or to automatically reverse unmatched transfers;
therefore, they do not need to rely on similar features built into
the NBES application.
\14\ The use of similar receiver control features by the
Depository Trust Company (DTC) and many banks with computer-
interface Fedwire connections, for instance, has not resulted in
significant operating problems or settlement delays.
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Because the feature is intended to enable low to medium volume on-
line participants to manage better their receipt of unanticipated,
misdirected, or incorrect DVP securities transfers and the related
debits to their reserve or clearing balances, the Board acknowledges
that the timing of some securities transfers for certain participants
may be affected by the use of an automated reversal feature. The Board,
however, believes that instances of such delays will be limited,
isolated, and have no systemic effects on securities settlements.
To the extent that any isolated abuses of the receiver control
feature occur, the Board believes that such abuses can and should be
resolved between the parties to the transfer. If necessary, this
bilateral resolution process might be facilitated by the development of
industry guidelines or standards regarding the use of receiver controls
by the receiver and the ``good delivery'' of securities by the sender.
The Board encourages the development of such industry guidelines.
Participants may also wish to establish an industry-sanctioned process
to mediate and resolve any perceived abuses. To the extent any abusive
practices with regard to receiver controls might be widespread or, at
an individual Fedwire participant level, long standing, and a Reserve
Bank is made aware of the pattern of abuse or mismanagement of the
receiver control feature, the Reserve Bank may counsel the
participant(s). If identified abuses continue following counseling by
the Reserve Bank, it may in its sole discretion limit or prohibit
continued use of the receiver control feature by that participant(s).
The Board, therefore, has authorized the Reserve Banks to proceed
with the design and implementation of an automated receiver control
feature for institutions that access NBES via Fedline. Consistent with
the Federal Reserve's long-term strategy to expand the use of
electronic connections in the Fedwire services, the Board believes that
the availability of automated receiver control tools in the NBES will
encourage institutions that currently communicate transfer instructions
to the Reserve Banks via telephone or in writing to migrate toward an
electronic connection.
The Reserve Banks plan to make the receiver control feature for
Fedline participants available for use in 2000. Once an implementation
schedule is finalized, the Reserve Banks will notify depository
institutions regarding the specific date that the receiver control
feature will be available to Fedline participants.
IV. Competitive Impact Analysis
The Board has established procedures for assessing the competitive
impact of rule or policy changes that have a substantial impact on
payment system participants.\15\ Under these procedures, the Board will
assess whether a change would have a direct and material adverse effect
on the ability of other service providers to compete effectively with
the Federal Reserve in providing similar services due to differing
legal powers or constraints, or due to a dominant market position of
the Federal Reserve deriving from such differences. If no reasonable
modifications would mitigate the adverse competitive effects, the Board
will determine whether the anticipated benefits are significant enough
to proceed with the change despite the adverse effects.
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\15\ These procedures are described in the Board's policy
statement ``The Federal Reserve in the Payments System,'' as revised
in March 1990 (55 FR 11648, March 29, 1990).
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Other providers of securities transfer services do not provide
services that are directly comparable to the Fedwire book-entry
securities transfer service because only the Federal Reserve Banks can
provide final delivery-versus-payment of securities settled in central
bank money. There are other private-sector systems, however, such as
the Government Securities Clearing Corporation, the Depository Trust
Company, and the Participants Trust Company, that facilitate the
clearance and settlement of market trades of U.S. Treasury and/or
agency securities. Other U.S. government securities transactions may be
cleared and settled on the books of depository institutions to the
extent that counterparties are customers of the same depository
institution.
The Board does not believe that the implementation of receiver
control features on the Fedwire securities
[[Page 18027]]
transfer system would have a direct and material adverse effect on the
ability of other service providers to offer similar services. First,
these private-sector service providers could provide (and some do
provide) receiver control features to their participants. Second, the
Fedwire securities transfer service does not compete directly with
these service providers, since it either transfers securities not
eligible for these other service providers or provides a complementary
settlement service. Finally, given the Federal Reserve Banks' provision
of intraday credit as a part of the securities settlement process, an
automated reversal feature would likely provide some added flexibility
and benefit to certain Fedwire participants in managing their receipt
of securities transfers.
By order of the Board of Governors of the Federal Reserve
System, April 8, 1998.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-9665 Filed 4-10-98; 8:45 am]
BILLING CODE 6210-01-P
