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l l★K

Federal Reserve Bank
of Dallas

HELEN E. HOLCOMB
DALLAS, TEXAS
75265-5906

FIRST VICE PRESIDENT AND
CHIEF OPERATING OFFICER

November 14, 2000
Notice 00-70
TO: The Chief Operating Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
New Approach to Pricing ACH Transactions
DETAILS
The Board of Governors of the Federal Reserve System has approved a new approach
to pricing automated clearing house (ACH) transactions exchanged with private-sector ACH
operators (PSOs). The Reserve Banks will initiate discussions with the operators to negotiate the
structure and level of fees that will be charged by the Reserve Banks for processing interoperator
transactions as well as fees that will be paid to the PSOs.
The Reserve Banks will work collaboratively with the PSOs to establish deposit
deadlines and to address other operational issues. To permit time for necessary software modifications, the new interoperator deposit deadlines will be implemented by the Reserve Banks no
later than June 2001, while the new fees will be implemented no later than September 2001.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 66249–53, Vol. 65, No. 214 of the
Federal Register dated November 3, 2000, is attached.
MORE INFORMATION
For more information, please contact Ann Dodson at (214) 922-5802. For additional
copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254 or access
District Notices on our web site at http://www.dallasfed.org/banking/notices/index.html.
Sincerely,

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

66249

Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices
inspection at the Federal Reserve Bank
indicated. The application also will be
available for inspection at the offices of
the Board of Governors. Interested
persons may express their views in
writing on the standards enumerated in
the BHC Act (12 U.S.C. 1842(c)). If the
proposal also involves the acquisition of
a nonbanking company, the review also
includes whether the acquisition of the
nonbanking company complies with the
standards in section 4 of the BHC Act
(12 U.S.C. 1843). Unless otherwise
noted, nonbanking activities will be
conducted throughout the United States.
Additional information on all bank
holding companies may be obtained
from the National Information Center
website at www.ffiec.gov/nic/.
Unless otherwise noted, comments
regarding each of these applications
must be received at the Reserve Bank
indicated or the offices of the Board of
Governors not later than November 27,
2000.
A. Federal Reserve Bank of Atlanta
(Cynthia C. Goodwin, Vice President)
104 Marietta Street, N.W., Atlanta,
Georgia 30303–2713:
1. Capital City Bank Group, Inc.,
Tallahassee, Florida; to acquire 20.75
percent of the voting shares of First
Peoples Bankshares, Inc., Pine
Mountain, Georgia, and thereby
indirectly acquire voting shares of First
Peoples Bank, Pine Mountain, Georgia.
B. Federal Reserve Bank of Chicago
(Phillip Jackson, Applications Officer)
230 South LaSalle Street, Chicago,
Illinois 60690–1414:
1. Northwest Suburban Bancorp, Inc.,
Mount Prospect, Illinois; to acquire 100
percent of the voting shares of Village
Bank and Trust, North Barrington,
Illinois.

either directly or through a subsidiary or
other company, in a nonbanking activity
that is listed in § 225.28 of Regulation Y
(12 CFR 225.28) or that the Board has
determined by Order to be closely
related to banking and permissible for
bank holding companies. Unless
otherwise noted, these activities will be
conducted throughout the United States.
Each notice is available for inspection
at the Federal Reserve Bank indicated.
The notice also will be available for
inspection at the offices of the Board of
Governors. Interested persons may
express their views in writing on the
question whether the proposal complies
with the standards of section 4 of the
BHC Act. Additional information on all
bank holding companies may be
obtained from the National Information
Center website at www.ffiec.gov/nic/.
Unless otherwise noted, comments
regarding the applications must be
received at the Reserve Bank indicated
or the offices of the Board of Governors
not later than November 17, 2000.
A. Federal Reserve Bank of Chicago
(Phillip Jackson, Applications Officer)
230 South LaSalle Street, Chicago,
Illinois 60690–1414:
1. Midwest Banc Holdings, Inc.,
Melrose Park, Illinois; to acquire
through its subsidiary, Midwest
Financial and Investment Services, Inc.,
Elmwood Park, Illinois, Service 1st
Financial Corporation, Elmwood Park,
Illinois, and thereby engage in securities
brokerage activities, pursuant to
§ 225.28(b)(7)(i) of Regulation Y.

Board of Governors of the Federal Reserve
System, October 30, 2000.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 00–28229 Filed 11–2–00; 8:45 am]

BILLING CODE 6210–01–P

BILLING CODE 6210–01–P

Notice of Proposals To Engage in
Permissible Nonbanking Activities or
To Acquire Companies That Are
Engaged in Permissible Nonbanking
Activities
The companies listed in this notice
have given notice under section 4 of the
Bank Holding Company Act (12 U.S.C.
1843) (BHC Act) and Regulation Y, (12
CFR part 225) to engage de novo, or to
acquire or control voting securities or
assets of a company, including the
companies listed below, that engages

16:15 Nov 02, 2000

FEDERAL RESERVE SYSTEM
[Docket No. R–1037]

Federal Reserve ACH Deposit
Deadlines and Pricing Practices for
Transactions Involving Private-Sector
ACH Operators

FEDERAL RESERVE SYSTEM

VerDate 11<MAY>2000

Board of Governors of the Federal Reserve
System, October 30, 2000.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 00–28230 Filed 11–2–00; 8:45 am]

AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Notice.
SUMMARY: The Board has approved a
new approach to pricing automated
clearing house transactions that the
Federal Reserve Banks exchange with
intermediaries that are defined as
operators under the operating rules of
the National Automated Clearing House
Association. The Reserve Banks will
initiate discussions with the private-

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sector ACH operators (PSOs) to
negotiate the structure and level of fees
that will be charged by the Reserve
Banks for processing interoperator
transactions as well as those fees that
the Reserve Banks will pay the PSOs.
The Reserve Banks will work
collaboratively with the PSOs to
establish deposit deadlines by which
they would exchange interoperator
transactions with each other and to
address other operational issues. To
permit time for necessary software
modifications, the new interoperator
deposit deadlines will be implemented
by the Reserve Banks no later than June
2001 while the new fees will be
implemented no later than September
2001.
FOR FURTHER INFORMATION CONTACT: Jack
K. Walton II, Manager, Retail Payments
Section (202/452–2660); Michele Braun,
Project Leader, Retail Payments Section
(202/452–2819); or Jeffrey S. H.
Yeganeh, Senior Financial Services
Analyst, Retail Payments Section,
Division of Reserve Bank Operations
and Payment Systems (202/728–5801);
for the hearing impaired only, contact
Janice Simms, Telecommunication
Device for the Deaf (202/872–4984).
SUPPLEMENTARY INFORMATION:
I. Background
The Federal Reserve Banks are
collectively the nation’s largest
automated clearing house (ACH)
operator and process more than 80
percent of commercial interbank ACH
transactions. PSOs process the
remaining transactions and typically
provide services, including processing
and settling ACH transactions, similar to
those offered by the Reserve Banks.
PSOs and the Reserve Banks rely on
each other for the processing of some
transactions in which either the
originating depository financial
institution (ODFI) or receiving
depository financial institution (RDFI) is
not their customer. These interoperator
transactions are settled by the Reserve
Banks.
Some industry representatives have
expressed concerns that the Reserve
Banks’ price and service level policies
have created barriers to open and
vigorous competition among ACH
operators because the policies do not
recognize the role played by operators
in the ACH system.1 Specifically, these
representatives have maintained that the
Reserve Banks’ deposit deadlines and
1 ACH Vision 2000 Task Force Recommendations,
NACHA, 1997; The Role of the Federal Reserve and
the Banking Industry in the Retail Electronic
Payments Systems of the Future, The Bankers
Roundtable, April 1998.

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Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices

price structure do not permit the PSOs
to compete effectively in the provision
of ACH services to depository
institutions.
In response to the industry’s
concerns, the Board requested comment
last year on the benefits and drawbacks
of modifying the Reserve Banks’ deposit
deadlines and pricing practices for ACH
transactions exchanged with PSOs (64
FR 27793, May 21, 1999). Specifically,
the Board requested comment on
whether the Reserve Banks should (1)
modify their deposit deadlines and
processing schedules, (2) modify their
price structure for interoperator
transactions, and (3) limit any
modifications to PSOs only. Based on
comments received, the Board
concluded that adopting certain
modifications to the Reserve Banks’
deposit deadlines and price structure for
ACH transactions exchanged with PSOs
would enhance competition in the
provision of ACH operator services to
depository institutions.
In May 2000, the Board requested
comment on a proposal to modify the
Reserve Banks’ deadlines and pricing
practices for ACH interoperator
transactions that would promote
competition in the provision of ACH
services and address the concerns raised
by some commenters (65 FR 34183, May
26, 2000). Specifically, the Board
proposed the following modifications to
the deadlines and price structure for
ACH interoperator transactions that are
processed by the Reserve Banks:
• Deposit deadlines: The Board
proposed that the Reserve Banks work
collaboratively with ACH operators to
establish interoperator deposit
deadlines by which the Reserve Banks
and the PSOs would exchange
interoperator transactions.
• Price structure: The Board proposed
the following price structure for
interoperator transactions processed by
the Reserve Banks with price ranges
based on preliminary cost analyses by
the Reserve Banks.2 Further, the Reserve
Banks indicated that they planned to
maintain the current fee structure for
their customers and did not anticipate
any increases in fees resulting from this
proposal.
—First, the Reserve Banks would charge
ACH operators a monthly network
2 In developing the proposed price structure for
interoperator transactions, the Reserve Banks used
a cost-based approach to set fees. The Reserve
Banks attempted to identify costs related to network
access, processing, and settlement and to price
those components separately. Further, the Reserve
Banks excluded certain costs that might not be
incurred when services are provided to ACH
operators so that the interoperator fee structure
would reflect, as closely as possible, the cost
structure for interoperator transactions.

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13:07 Nov 02, 2000

access fee of between $5 and $10 for
each routing number they access on
the Reserve Banks’ ACH network.
—Second, the Reserve Banks would
charge ACH operators a per-item fee
of between $0.002 and $0.004 for
transactions they send through the
Reserve Banks’ ACH network.
—Third, the Reserve Banks would
charge depository institutions that
send and receive all their
transactions through PSOs a
monthly settlement fee of about $20
rather than the current monthly
account servicing fee of $25.3
—Fourth, the Reserve Banks would
pay PSOs for commercial and
government ACH transactions they
send to depository institutions
through those PSOs. Fees paid by
the Reserve Banks to the PSOs
would compensate the PSOs for the
services they provide the Reserve
Banks by delivering transactions to
RDFIs. PSOs would not be required
to adopt the Reserve Banks’ price
structure and fees for transactions
sent to them by Reserve Banks but
rather could establish their own
price structure and fees.
• Eligibility: The Board proposed
limiting the modified deadlines and
price structure to intermediaries that are
defined as ACH operators in the
operating rules of the National
Automated Clearing House Association
(NACHA).
II. Summary and Analysis of Comments
The Board received twenty-nine
responses to its request for comment.
The following table shows the number
of comments received by category of
commenter: 4
Commenters

Number

Small banks, thrifts, and credit
unions ..........................................
Large banks ....................................
ACH associations ...........................
Bankers’ banks and corporate
credit unions ................................
Private-sector operators .................
Federal Reserve Banks ..................
Trade associations .........................
Clearing houses ..............................

9
6
3
3
3
2
2
1

3 The Reserve Banks would no longer provide
customer service to depository institutions for
transactions they send or receive through a PSO.
These institutions would have to direct transaction
and service-related inquiries to their PSOs. The
Reserve Banks, however, would continue to provide
customer service on settlement-related questions.
4 Responses from trade associations were
included with the organizations they present. Two
trade associations (The American Bankers
Association and The Association for Financial
Professionals), however, did not fall into one
specific category and are listed separately.

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Commenters

Number

Total .........................................

29

Overall, fifteen commenters
supported and fourteen commenters
opposed the Board’s proposal. Those
supporting the proposal generally
tended to be smaller depository
institutions; however, the American
Bankers Association, two large banks, a
bankers’ bank, and the Reserve Banks
supported the proposal as well. These
commenters believed the proposal
would enhance competition. They also
believed that the proposal reflected a
balanced approach towards addressing
the competitive concerns of PSOs and
the pricing concerns of small banks.
Those opposing the proposal generally
tended to be PSOs, ACH associations,
and larger banks; however, two
corporate credit unions, a clearing
house, and the Association for Financial
Professionals opposed the proposal as
well. These commenters believed that
the proposed modifications would not
improve competition in the provision of
ACH services and were primarily
concerned that the proposed price
structure would exacerbate current
competitive imbalances.
A. Deposit Deadlines
Summary of Comments—In its May
2000 request for comment, the Board
proposed that the Reserve Banks work
collaboratively with ACH operators to
establish interoperator deposit
deadlines by which the Reserve Banks
and the PSOs would exchange
interoperator transactions. The Reserve
Banks’ preliminary recommendation
was that one interoperator deposit
deadline be established at 2:30 p.m.
eastern time for immediate settlement
items and that another interoperator
deposit deadline for next-day settlement
items be established at 3 a.m. eastern
time.5 Under the proposal, PSOs would
continue to be free to establish other
deadlines by which they would
exchange interoperator transactions
among themselves. Further, all ACH
operators, including the Reserve Banks,
would be free to establish deposit and
delivery deadlines for their customers.
Almost all commenters supported the
Board’s proposal to modify deposit
deadlines. Commenters indicated that
5 Immediate settlement items are settled on the
same banking day as they are received while nextday settlement items are settled one or two banking
days after they are received. The Reserve Banks’
banking day for the receipt of ACH items is from
3 a.m. eastern time to 2:59 a.m. eastern time on the
next calendar day. Only return items and National
Association of Check Safekeeping items are eligible
for immediate settlement.

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Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices
the proposal provided an excellent
starting point for discussions between
the Reserve Banks and PSOs to establish
deposit deadlines for interoperator
transactions. These commenters
believed that the preliminary
recommendation would help level the
playing field between Reserve Banks
and PSOs and thus improve
competition. Further, they believed that
because the Reserve Banks currently
receive almost all of their next-day item
deposits well in advance of the 3 a.m.
deposit deadline, most Reserve Bank
customers would not be adversely
affected. Most commenters believed that
the deposit deadline modifications
could be implemented independent of
the remainder of the proposed
modifications and that the Reserve
Banks and PSOs would have to address
a number of technical issues, such as
how to handle requests for deadline
extensions.
One commenter, however, indicated
that it would not be in favor of
modifications that would shorten
current deposit deadlines for Reserve
Bank customers. Wachovia Bank noted
that while the adverse impact of
changes in deposit deadlines on Reserve
Bank customers might be minimal, the
Board should avoid any adverse impact.
Another commenter, ABN AMRO, also
voiced concerns about the potential
earlier Reserve Bank customer deposit
deadline for next-day items and
suggested that the Board’s long-term
goal should be to make the deadline
later than it is today.
When it requested comment, the
Board noted the problems posed by
transactions that involve three
operators. Currently, some of the
transactions that PSOs deposit with the
Reserve Banks are destined to other
PSOs, which results in some
transactions being processed by three
operators.6 With interoperator deposit
deadlines, however, if an operator
receives a transaction from another
operator at the interoperator deposit
deadline that is destined to a third
operator, the middle operator would be
unable to forward the transaction timely
because the deadline to deposit
transactions with the third operator
6 The Board understands that some depository
institutions that use a PSO prefer to minimize the
number of settlement entries they receive for their
ACH transactions. Most of these institutions already
receive and reconcile two settlements—one from
their PSO, another from the Reserve Banks—and do
not want to receive a third settlement for ACH
transactions that PSOs exchange directly using the
Private ACH Exchange (PAX) system. Thus, PSOs
use the Reserve Banks to send some transactions
destined to other PSOs, which minimizes the
number of settlement entries for a given institution
but results in three-operator transactions.

VerDate 11<MAY>2000

13:07 Nov 02, 2000

would have already passed. To address
this issue, the Board suggested that
NACHA evaluate whether its ACH
operator definition should be revisited
to require operators to exchange
interoperator transactions directly with
the operator serving the RDFI. In any
case, to ensure that the Reserve Banks
are able to forward the transactions to
the RDFI’s operator by the interoperator
deposit deadline, the Board proposed
that the Reserve Banks require all ACH
transactions that need to be forwarded
to another operator, including
transactions deposited by a PSO, be
deposited by the Reserve Banks’
customer deposit deadline.
Commenters believed that the threeoperator transaction issue could be
addressed through NACHA operating
rules but were careful to note that any
NACHA operating rule modifications
should not result in a degradation of
service to RDFIs. The Chicago Reserve
Bank, however, suggested that files
deposited with the Reserve Banks by a
PSO that contain transactions destined
to a third operator should not be eligible
for modified deadlines and pricing.
Board Analysis—The Board has
concluded that the Reserve Banks
should work collaboratively with ACH
operators to establish interoperator
deposit deadlines by which the Reserve
Banks and the PSOs would exchange
interoperator transactions. The PSOs
would continue to be free to establish
other deadlines by which they would
exchange interoperator transactions
among themselves. Further, the Reserve
Banks and the PSOs would be free to
establish deposit and delivery deadlines
for their customers.
Based on the comments received in
response to its request for comment, the
Board believes that establishing
interoperator deposit deadlines by
which Reserve Banks and the PSOs
would exchange transactions would
enhance the competitive environment
with minimal operational impact on
Reserve Bank customers. Preliminary
discussions between the Reserve Banks
and the PSOs suggest that the
interoperator deposit deadline for
immediate settlement items would
likely be set at 2:30 p.m. eastern time
and the interoperator deposit deadline
for next-day settlement items would be
set at 3:00 a.m. eastern time. As a result,
PSOs should be able to deliver
transactions to RDFIs earlier than they
do today, which should result in
competitive RDFI delivery schedules
between the Reserve Banks and PSOs.
Assuming these deadlines are adopted,
the Reserve Banks’ customer deposit
deadline for next-day items will be
adjusted to permit the Reserve Banks to

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forward interoperator transactions to
PSOs by the 3:00 a.m. deadline. Reserve
Bank customer deposit deadlines will be
finalized after the Reserve Banks and
the PSOs set the interoperator deposit
deadlines. In addition, the Reserve
Banks and the PSOs will work together
to address technical operational issues
to ensure that the ACH system operates
as efficiently and effectively as possible.
The new interoperator exchange
deadlines will be implemented no later
than June 2001.
The Board agrees with commenters
that the three-operator transaction issue
should be addressed through NACHA
operating rules. Accordingly, the Board
recommends that NACHA revisit its
ACH operator definition and require
operators to exchange interoperator
transactions directly with the operator
serving the RDFI. Further, to ensure that
the Reserve Banks are able to forward
interoperator transactions by the
interoperator deposit deadline, the
Reserve Banks will require all ACH
transactions that need to be forwarded
to another operator, including
transactions deposited by a PSO, be
deposited by the Reserve Banks’ regular
customer deposit deadline. The Board
anticipates that the adoption of
interoperator exchange deadlines will
enable the Reserve Banks and PSOs to
offer RDFIs competitive delivery
schedules and believes that ODFIs will
be able to modify their deadlines or
operational procedures to meet an
earlier Reserve Bank customer deposit
deadline for next-day items.
B. Price Structure for Interoperator
Transactions
Summary of Comments.—
Commenters were split on the
appropriateness of the proposed price
structure for interoperator transactions
processed by the Reserve Banks.
Supporters believed that the proposed
price structure would promote
competition in the provision of ACH
operator services. Some supporters of
the proposal, however, indicated that
their support was premised on the
assumption that these pricing changes
would not result in higher fees to
Reserve Bank customers, a result they
would oppose.
Commenters opposing the proposed
price structure believed that it would
not correct the current competitive
inequities and could possibly harm
competition. These commenters
suggested that the proposed price
structure would permit the Reserve
Banks to continue to dominate the
market for ACH operator services. These
commenters believed that the proposal’s
use of network access fees based on the

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number of RDFI routing numbers
accessed and per-item fees based on the
volume of transactions processed did
not accurately reflect the Reserve Banks’
cost structure. As a result, these
commenters believed that the proposed
structure would threaten the viability of
PSOs and would result in PSO
customers subsidizing Reserve Bank
customers. These commenters
recommended that the Reserve Banks
and the PSOs exchange interoperator
transactions at par, i.e., with no fees
being assessed. If par exchange were not
possible, commenters suggested
recovering the network access costs
through per-item fees.7
The Board also requested comment on
how the fees that operators would
charge each other might be restrained.
The Board was concerned that an
operator might be able to charge other
operators excessive fees for access to
RDFIs on its network if RDFIs were
unwilling to accept the delivery of ACH
transactions directly from multiple
operators. The Board was also
concerned about fee increases to
Reserve Bank and PSO customers that
could result from potentially spiraling
interoperator fees as the Reserve Banks
and PSOs attempted to cover the costs
of interoperator transactions by charging
each other higher fees. The Board noted
that it believed that maintaining low,
cost-based interoperator fees would
enhance the continued growth of the
ACH network.
Commenters stated that the Federal
Reserve does not have the legal
authority to restrain or impose the fees
that PSOs charge the Reserve Banks.
These commenters noted that the
7 Several commenters appeared to have
misconceptions about the proposed price structure.
For example, Visa USA misunderstood the Board’s
proposed network access fee as applying to all
routing numbers on the Reserve Banks’ ACH
network. The Board’s proposal, however, stated that
the Reserve Banks would charge PSOs a network
access fee only for those routing numbers to which
they actually sent transactions. Due to this
misinterpretation, Visa significantly overestimated
the fees that PSOs would pay for access to the
Reserve Banks’ ACH network under the proposed
price structure. Similarly, the American Clearing
House Association (ACHA) misinterpreted the
Board’s proposal as restricting how PSOs could
establish fees they would charge Reserve Banks for
interoperator transactions and as requiring PSOs to
adopt a price structure that was based on the
Reserve Banks’ ACH cost structure. The Board’s
proposal indicated that the proposed price structure
was how the Reserve Banks would charge PSOs for
accessing the Reserve Banks’ ACH network. The
proposal did not require, as suggested in ACHA’s
response, that the PSOs adopt the proposed price
structure when they set fees for Reserve Bank access
to the PSOs’ ACH networks. Indeed, the Board’s
concern about a potential escalation in the fees that
operators might charge each other indicates that the
Board recognized that operators would likely charge
each other different fees under different price
structures.

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13:07 Nov 02, 2000

potential need for fee restraints
suggested that the proposed price
structure was not economically viable.
These commenters believed that the
only restraints on interoperator pricing
should be market-based. If interoperator
fees become unreasonable, operators
could establish direct connections to its
competitors’ customers thereby
bypassing the operator assessing the
unreasonable fees. These commenters,
nevertheless, believed that restraints
would not be necessary because it is
likely that PSOs would charge Reserve
Banks the same fees they are charged by
the Reserve Banks. Other commenters,
however, suggested that the Reserve
Banks should negotiate interoperator
fees with the PSOs and that Reserve
Banks should not pay PSOs a higher fee
than they charge the PSOs. By adopting
these approaches, these commenters
indicated that the Reserve Banks could
ensure that their customers are not
subsidizing the PSOs’ operations.
Board Analysis—The Board has
approved a new approach to pricing
interoperator transactions. As the Board
noted in its request for comment, the
Reserve Banks expend resources when
they receive, process, and deliver
interoperator transactions. Thus,
exchanging interoperator transactions at
no charge, as suggested by some
commenters, could lead to inefficiencies
in the processing of ACH transactions.
The Board, however, has determined
that the proposal to recover network
costs through a network access fee based
on the number of routing numbers
accessed by PSOs would not be an
appropriate component of a price
structure for interoperator transactions.
Based on its analysis of comments,
the Board has concluded that the
Reserve Banks should initiate
discussions with the PSOs to negotiate
the structure and level of fees that
would be charged by the Reserve Banks
for interoperator transactions as well as
those fees that the Reserve Banks would
pay the PSOs. The Board believes that
negotiations between the Reserve Banks
and PSOs should result in interoperator
fees that would enhance competition in
the provision of ACH operator services.8
The Board has also approved, as
originally proposed, the settlement fee
that would be assessed to depository
institutions that send and receive all
their transactions that are processed by
the Reserve Banks through PSOs.
Specifically, the Reserve Banks would
charge a monthly settlement fee of about
8 The negotiated fees would apply to both
commercial and government ACH transactions that
the Reserve Banks send to depository institutions
through PSOs.

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$20 per routing number, rather than the
current monthly account servicing fee of
$25, to settle interoperator transactions
processed by the Reserve Banks for
institutions that do not send ACH
transactions directly to or receive ACH
transactions directly from the Reserve
Banks. This fee would enable Reserve
Banks to recover the costs associated
with settling interoperator transactions
processed by the Reserve Banks.
In addition, the Board has determined
that PSOs should pay a reduced
electronic connection fee. PSOs are
currently charged electronic connection
fees in accordance with the Reserve
Banks’ fee schedules. PSOs use their
electronic connections to send
interoperator transactions to the Reserve
Banks. The Reserve Banks, however,
also use these electronic connections to
send interoperator transactions to the
PSOs. As a result, Reserve Banks derive
benefits from these electronic
connections similar to those derived by
the PSOs. Thus, the Board believes that
the Reserve Banks should charge the
PSOs only half the electronic
connection fees they are being charged
currently.
The Board anticipates that the new
price structure would be implemented
no later than September 2001. The
specific implementation date of prices
for interoperator transactions will be
announced well in advance of the
effective date.
C. Eligibility
Summary of Comments—The primary
distinction between ACH operators, as
defined by NACHA rules, and other
intermediaries is that operators provide
clearing, delivery, and settlement
services for intraoperator transactions
and exchange interoperator transactions
with other operators.9 Third-party
9 NACHA recently adopted modifications to its
definition of an ACH operator (NACHA Operating
Rules, section 13.1.1). To qualify as a private-sector
ACH operator, an entity must execute an agreement
with NACHA to comply with or perform all of the
following: adhere to NACHA operating rules and
other applicable laws and regulations; execute
agreements with a minimum of twenty independent
depository institutions that bind the depository
institutions to NACHA operating rules and the ACH
operator’s rules; provide clearing, delivery, and
settlement services for intraoperator transactions;
exchange interoperator transactions with other ACH
operators; process and edit files based on the
requirements of NACHA operating rules; evaluate
the creditworthiness of and apply risk control
measures to their customers; adhere to the Federal
Reserve’s Policy Statement on Privately Operated
Multilateral Settlement Systems; and adhere to any
NACHA performance standards for ACH operators.
Under this definition, Electronic Payments
Network, Visa, and American Clearing House
Association are considered to be private-sector ACH
operators. The Reserve Banks reserve the right to
establish their own operator definition should they

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Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices
processors typically do not provide
settlement services for transactions they
process while correspondent banks
typically do not provide the
comprehensive clearing and delivery
services provided by operators. Thus,
the Reserve Banks tend to compete with
PSOs, and not third-party processors or
correspondent banks, in providing
services to depository institutions.
Commenters strongly supported the
use of NACHA’s operator definition to
determine eligibility for deadline and
price structure modifications. The
Federal Reserve Banks of Chicago and
Richmond, however, opposed the use of
NACHA’s operator definition. The
Chicago Reserve Bank believed that,
given some of the arbitrary aspects of
NACHA’s operator definition, limiting
eligibility for deadline and price
structure modifications to
intermediaries that meet NACHA’s
operator definition could worsen the
competitive position of other ACH
´
intermediaries vis-a-vis operators and
the Reserve Banks. The Richmond
Reserve Bank believed that limiting
eligibility to only a certain group of
intermediaries that provide all of
components of the bundle of services
that comprise ACH operator services
would be inconsistent with the spirit of
the proposal, which recognizes the
improved competitive environment
associated with unbundling services.
Board Analysis—The Board has
concluded that the Reserve Banks’
deadline and price structure
modifications be limited to any
intermediary that is defined as an
operator under NACHA rules. The
Board believes that the role of Reserve
Banks in the ACH system is analogous
to the role played by PSOs. ACH
operators play a significant role in
protecting the integrity of the overall
ACH network and ensuring its
interoperability and efficiency, a role
that is separate and distinct from the
role of other ACH intermediaries.
Further, while the Board believes that
certain aspects of NACHA’s operator
definition could be strengthened, the
current definition does not preclude
other entities from becoming new
operators and competing with
established operators.
II. Competitive Impact
The Board conducts a competitive
impact analysis when it considers a
major operational change, such as that
being proposed for ACH interoperator
transactions. 10 Specifically, in its
object to any future modifications to NACHA’s
definition of an ACH operator.
10 Federal Reserve Regulatory Service, 7–145.2.

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13:07 Nov 02, 2000

analysis, the Board has assessed
whether the interoperator deadlines and
price structure would have a direct and
material adverse effect on the ability of
other service providers to compete
effectively with the Reserve Banks in
providing similar services, and if so,
whether the adverse effect on
competition is due to differing legal
powers or constraints, or due to a
dominant market position deriving from
such legal differences.
The purpose of the deadline and price
structure modifications discussed above
is to further enhance the competitive
environment for ACH operator services.
These modifications should enhance the
ability of PSOs to compete with the
Reserve Banks in providing ACH
operator services to depository
institutions. Specifically, PSOs will be
able to establish customer deposit
deadlines similar to those of Reserve
Banks. Further, the Reserve Banks and
PSOs will have the same ability to
charge each other for the processing and
delivery of ACH transactions to RDFIs
that they serve. Moreover, depository
institutions and other intermediaries
might benefit from lower ACH
transaction fees that could result from a
more competitive market for the
provision of ACH operator services.
Thus, the Board does not anticipate any
adverse effects on competition resulting
from this proposal.
IV. Conclusion
The Board has decided on the
following modifications to the Reserve
Banks’ deposit deadlines and price
structure for interoperator transactions
that the Reserve Banks exchange with
PSOs.
• First, the Board has decided that the
Reserve Banks should work
collaboratively with ACH operators to
establish interoperator deposit
deadlines by which the Reserve Banks
and the PSOs would exchange
interoperator transactions. The PSOs
would continue to be free to establish
other deadlines by which they would
exchange interoperator transactions
among themselves. The interoperator
deposit deadlines will be implemented
no later than June 2001.
• Second, the Board has approved a
new approach to pricing interoperator
transactions that PSOs send to RDFIs on
the Reserve Banks’ ACH network.
—The Reserve Banks will charge
depository institutions that send and
receive all their transactions through
PSOs a monthly settlement fee of $20
per routing number, rather than the
monthly account servicing fee
(currently set at $25), to settle

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interoperator transactions processed
by the Reserve Banks.
—The Reserve Banks will initiate
discussions with the PSOs to
negotiate the structure and level of
fees that will be charged by the
Reserve Banks as well as those fees
that the Reserve Banks will pay the
PSOs.
—The Reserve Banks will charge ACH
operators half the published
electronic connection fee to reflect the
use of the connection by both ACH
operators and the Reserve Banks to
send each other interoperator
transactions.
The new prices for interoperator
transactions will be implemented by the
Reserve Banks no later than September
2001.
• Third, the Board has decided that
the Reserve Banks’ deadline and price
structure modifications be limited to
any intermediary that is defined as an
operator under NACHA rules.
The specific implementation date for
each of the modifications outlined
above will be announced well in
advance of the effective dates.
By order of the Board of Governors of the
Federal Reserve System, October 30, 2000.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 00–28228 Filed 11–2–00; 8:45 am]
BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM
Sunshine Act Meeting
AGENCY HOLDING THE MEETING: Board of
Governors of the Federal Reserve
System.
TIME AND DATE: 10 a.m., Wednesday,
November 8, 2000.
PLACE: Marriner S. Eccles Federal
Reserve Board Building, C Street
entrance between 20th and 21st Streets,
NW., Washington, DC 20551.
STATUS: Open.
MATTERS TO BE CONSIDERED:
Summary Agenda: Because of its
routine nature, no discussion of the
following item is anticipated. The
matter will be voted on without
discussion unless a member of the
Board requests that the item be
moved to the discussion agenda.
1. Proposed 2001 Private Sector
Adjustment Factor.
Discussion Agenda:
2. Proposed 2001 fee schedules for
priced services.
3. Any items carried forward from a
previously announced meeting.

Note: This meeting will be recorded for the
benefit of those unable to attend. Cassettes

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102