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Federal Reserve Bank
of

Dallas

HELEN E. HOLCOMB

DALLAS, TEXAS

FIRST VICE PRESIDENT AND
CHIEF OPERATING OFFICER

75265-5906

May 13, 1998
Notice 98-36

TO: The Chief Operating Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
No Change in Operating Hours for Fedwire Securities Transfers and
Plans for an Optional Automatic Reversal Feature
for Fedwire Securities Transfers
DETAILS
The Board of Governors of the Federal Reserve System has decided not to implement
an earlier opening time for the Fedwire securities transfer service. The current operating hours
for this service are listed in Operating Circular 7, Book-Entry Securities Account Maintenance
and Transfer Services.
The Board has also approved the introduction of an optional automatic reversal
feature for institutions that access the National Book-Entry System via a Fedline connection.
This feature may be made available to Fedline participants during 2000.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 18022-27, Vol. 63, No. 70 of the
Federal Register dated April 13, 1998, is attached.
MORE INFORMATION
For more information regarding the Fedwire securities transfer service, please contact
Nancy Barton at (214) 922-6746. For additional copies of this Bank’s notice, contact the Public
Affairs Department at (214) 922-5254.
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.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

18022

Federal Register/Vol. 63, No. 7 0 / M'onday, April 13, 1998/Notices
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:

FEDERAL RESERVE SYSTEM

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).

[Docket No. R -0 86 6 ]

SUPPLEMENTARY INFORMATION:

Federal Reserve Bank Services

I. Background

Board of Governors of the
Federal Reserve System.
ACTION: Notice.

AGENCY:

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 straightthrough 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
SUMMARY:

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).12 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.
Following its action on expanding
Fedwire funds transfer operating hours,
1All tim es are Eastern Tim e unless otherwise
noted.
2 These operating hours becam e effective on
December 8,1997. (61 FR 5433, November 6,1996).

Federal Register/Vol. 63, No. 70/M onday, April 13, 1998/Notices
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 Organiza­
tions3 ..............................................
Credit U n io n s....................................
Broker/Dealers ..................................
Clearing House Associations...........
Clearing Organizations ....................
Trade Associations ...........................
Federal Home Loan Banks ..............
Federal Reserve Banks ....................
State Governments ............................

21
2
2
2
1
3
2
2
l

Total public comments ............
36
3 Banks, bank holding companies, and op­
erating subsidiaries of banks or bank holding
companies.

II. Earlier Opening o f 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

18023

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.
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.
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-thecounter 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.
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.

4 The com m ents w ere received prior to Chemical
Bank’s merger w ith Chase M anhattan Bank, N.A.
and prior to PSA’s formal nam e change to the Bond
M arket Association.
5 Chemical Bank indicated that its dealer
clearance system operates from 5:00 a.m. to 10:00
p.m. each day to handle custom ers’ transaction
loading before the start of the day, reconcilem ent,
collateralizations (tri-party repo transactions), and
report generation. In addition, there is an overnight
processing cycle (five hours), w hich involves the
creation of end-of-day database back-ups,
generation of reports on m icrofiche, acquiring and
loading security price inform ation for next-day
transactions, and preparing the databases to be in
a start position for the next business day.
6 The com m ents were received prior to First
Chicago’s merger w ith NBD Bancorp.

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)

B. Attem pts To Reduce Potential Burden
o f a Substantially Earlier Opening Time

7 In M arch 1997, GSCC announced its long-range
plans for achieving the industry objectives of
straight-through processing and point-of-trade
guarantee. GSCC is considering im portant
processing changes, including the move to real-tim e
processing, w hich w ould reduce th e am ount of
batch processing that occurs overnight.

18024

Federal Register/Vol. 63, No. 70/Monday, April 13, 1998/Notices

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 offhours 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.
While most commenters preferred
establishing the opt-in feature at the
securities account level, several active
market participants suggested that optin 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
8 A securities account is an account at a Reserve
Bank containing book-entry securities held for a
p articipant. A participant m ay use different
securities accounts (e.g., trust, investm ent, and
dealer) to segregate securities h eld for different
purposes.

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 o f 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 bookentry 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

Federal Register/Vol. 63, No. 70/M onday, April 13, 1998/Notices
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.

18025

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
w indow .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.
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.

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.

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

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;

9 For a fuller description of ioff-shore trading in
U.S. Treasury securities, see M ichael J. Fleming,
“The Round-the-Clock Market for U.S. Treasury
Securities,” Federal Reserve Bank of New York
Econom ic Policy Review, July 1997.
10 The Board believes that, at least initially, only
a sm all num ber of Fedw ire securities transfer
service participants, w hich m ay represent a large
proportion of total volum e, w ould 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 nationw ide.

11 Currently, the NBES provides a lim ited
m atching feature th at com pares incom ing transfers
w ith pre-entered receipt instructions. W hen
activated, this feature identifies incom ing transfers
as “m atched” or “not m atched,” notifies the
receiving participant accordingly, and, if so
instructed by the participant, re-delivers (or turns
around) “m atched” securities autom atically to
another participant. Fedline participants can
activate this feature as needed.

18026

Federal Register/Vol. 63, No. 70/Monday, April 13, 1998/Notices

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.
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
12Fedline is th e Federal Reserve’s proprietary
com m unications software used by depository
institutions w ith a PC-based electronic connection
to the Federal Reserve. Depository institutions m ay
also connect electronically to Fedwire through a
com puter-interface connection, w hich links the
depository institu tio n ’s m ainfram e com puter to the
Federal Reserve’s m ainfram e computer.
13 Small volum e, off-line Fedw ire participants are
required to provide receipt instructions for any
anticipated incom ing securities transfers. (A
p articipant 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 n o t provided or the instructions do
not m atch the incom ing securities transfer, the
NBES w ill autom atically reverse the transfer to the
sender. Large-volume com puter-interface Fedwire
participants generally have the capability in their
internal securities transfer system s to flag
unm atched transfers or to autom atically reverse
unm atched transfers; therefore, they do not need to
rely on sim ilar features built into the NBES
application.
14The use of sim ilar receiver control features by
the D epository Trust Company (DTC) and many
banks w ith com puter-interface Fedwire
connections, for instance, has not resulted in
significant operating problem s or settlem ent delays.

communicate transfer instructions to the
by large-volume computer-interface
participants could result in the delay of Reserve Banks via telephone or in
transfers and potential gridlock. The use writing to migrate toward an electronic
connection.
of the automatic reversal feature also
may be limited by the Federal Reserve,
The Reserve Banks plan to make the
at any time, in the unlikely event that
receiver control feature for Fedline
any adverse market consequences result participants available for use in 2000.
from its use.
Once an implementation schedule is
Because the feature is intended to
finalized, the Reserve Banks will notify
enable low to medium volume on-line
depository institutions regarding the
participants to manage better their
specific date that the receiver control
receipt of unanticipated, misdirected, or feature will be available to Fedline
incorrect DVP securities transfers and
participants.
the related debits to their reserve or
IV. Competitive Impact Analysis
clearing balances, the Board
acknowledges that the timing of some
The Board has established procedures
securities transfers for certain
for assessing the competitive impact of
participants may be affected by the use
rule or policy changes that have a
of an automated reversal feature. The
substantial impact on payment system
Board, however, believes that instances
participants.15 Under these procedures,
of such delays will be limited, isolated,
the Board will assess whether a change
and have no systemic effects on
would have a direct and material
securities settlements.
To the extent that any isolated abuses adverse effect on the ability of other
of the receiver control feature occur, the service providers to compete effectively
Board believes that such abuses can and with the Federal Reserve in providing
similar services due to differing legal
should be resolved between the parties
to the transfer. If necessary, this bilateral powers or constraints, or due to a
dominant market position of the Federal
resolution process might be facilitated
Reserve deriving from such differences.
by the development of industry
If no reasonable modifications would
guidelines or standards regarding the
mitigate the adverse competitive effects,
use of receiver controls by the receiver
and the “good delivery” of securities by the Board will determine whether the
anticipated benefits are significant
the sender. The Board encourages the
enough to proceed with the change
development of such industry
despite the adverse effects.
guidelines. Participants may also wish
to establish an industry-sanctioned
Other providers of securities transfer
process to mediate and resolve any
services do not provide services that are
perceived abuses. To the extent any
directly comparable to the Fedwire
abusive practices with regard to receiver book-entry securities transfer service
controls might be widespread or, at an
because only the Federal Reserve Banks
individual Fedwire participant level,
can provide final delivery-versuslong standing, and a Reserve Bank is
payment of securities settled in central
made aware of the pattern of abuse or
bank money. There are other privatemismanagement of the receiver control
sector systems, however, such as the
feature, the Reserve Bank may counsel
Government Securities Clearing
the participant(s). If identified abuses
Corporation, the Depository Trust
continue following counseling by the
Company, and the Participants Trust
Reserve Bank, it may in its sole
Company, that facilitate the clearance
discretion limit or prohibit continued
and settlement of market trades of U.S.
use of the receiver control feature by
Treasury and/or agency securities. Other
that participant(s).
U.S. government securities transactions
The Board, therefore, has authorized
may be cleared and settled on the books
the Reserve Banks to proceed with the
of depository institutions to the extent
design and implementation of an
that counterparties are customers of the
automated receiver control feature for
same depository institution.
institutions that access NBES via
The Board does not believe that the
Fedline. Consistent with the Federal
implementation of receiver control
Reserve’s long-term strategy to expand
features on the Fedwire securities
the use of electronic connections in the
Fedwire services, the Board believes
15 These procedures are described in the Board’s
that the availability of automated
policy statem ent “The Federal Reserve in the
receiver control tools in the NBES will
Paym ents System ,” as revised in M arch 1990 (55 FR
encourage institutions that currently
11648, M arch 29,1990).

Federal Register/Vol. 63, No. 70/M onday, April 13, 1998/Notices
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.
W illiam W. W iles,

Secretary of the Board.

[FR Doc. 98-9665 Filed 4-10-98; 8:45 am]
BILLING CODE 6210-01-P

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