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F ederal R eserve Bank
OF DALLAS
T O N Y J . SALVAGGIO
FIR S T V IC E P R ES ID EN T
October 26, 1992
DALLA S. T E X A S 7 5 2 2 2
Notice 92-102
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Proposal to Change the Opening Time for the
Fedwire Funds Transfer Service
DETAILS
The Federal Reserve Board has issued for public comment a proposal
that would change the opening time for the Fedwire funds transfer service from
8:30 a.m. Eastern Time (ET) to 6:30 a.m. ET, effective October 4, 1993.
The Board’s proposal also calls for comment on whether the Fedwire
securities transfer service should open concurrently with the funds transfer
service. In addition, the Board requests input from depository institutions,
their customers, and the financial markets regarding the costs and benefits of
possible further expansion of Fedwire operating hours over time.
The Board must receive comments by January 8, 1993. Comments should
be addressed to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C.
20551. All comments should refer to Docket No. R-0778.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 47080-84, Vol.
57, No. 199, of the Federal Register dated October 14, 1992, is attached.
MORE INFORMATION
For more information, please contact Larry Ripley at (214)
922-6429 or Jonnie Miller at (214) 922-6433. For additional copies of this
Bank’s notice, please 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)
47080
Federal Register / Vol. 57. No. 199 / Wednesday, October 14, 1992 / Notices
FEDERAL RESERVE SYSTEM
[Docket No. R -0778]
Federal Reserve Bank Services
Board of Governors of the
Federal Reserve System.
ACTION: Request f o r comment.
AGENCY:
The Board is requesting
comment on a proposal to change the
opening time for the Fedwire funds
transfer service from 8:30 a.m. Eastern
Time (ET] to 6:30 a.m. ET, effective October 4,1993. A 6:30 a.m. ET Fedwire
funds transfer opening time would
facilitate changes to the settlement
practices of the futures and options
markets that would reduce the risks in
those markets. It would also permit a
reduction in the risk associated with the
settlement of foreign exchange
transactions. The Board is also
requesting comment on whether the
Fedwire securities transfer service
should open concurrently with the funds
transfer service at 6:30 a.m. ET, if the
earlier opening time for the funds
transfer service is implemented. In
addition, the Board is requesting
comment on the benefits and costs to
depository institutions, to their
customers, and to the financial markets
of further expansion of Fedwire
operating hours over time.
DATES: Comments must be submitted on
or before January 8,1993.
ADDRESSES: Comments, which should
refer to Docket No. R-0778, may be
mailed to Mr. William W. Wiles,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW„ Washington.
DC 20551. Comments addressed to Mr.
Wiles may also be delivered to the
Board's mail room between 8:45 a.m.
and 5:15 p.m., and to the security control
room outside of those hours. Both the
mail room and the security control room
are accessible from the courtyard
entrance on 20th Street between
Constitution Avenue and C Street, NW.
Comments may be inspected in room B1122 between 9 and 5 p.m., except as
provided in § 261.8 of the Board's Rules
Regarding the Availability of
Information, 12 CFR 261.8.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
For information regarding Fedwire funds
and securities transfer operating hours.
contact Gayle Brett, Manager (202/4522934). or Lisa Hoskins, Senior Financial
Services Analyst (202/452-3437),
Division of Reserve Bank Operations
and Payment Systems. For information
regarding the market needs for extended
Fedwire operating hours, contact Patrick
M. Parkinson. Assistant Director (202/
452-3526) or Patricia White, Senior
Economist (202/452-2912), Division of
Research and Statistics. For the hearing
impaired only: Telecommunications
Device for the Deaf. Dorothea
Thompson (202/452-3544).
In April
1990, the Federal Reserve adopted
uniform operating hours for the Fedwire
funds and securities transfer services,
effective August 1.1990. (55 FR 18755,
May 4,1990) An 8:30 a.m. Eastern Time
(ET) opening time for the funds transfer
and book-entry securities transfer
services was established. The Board
indicated that uniform operating hours
would promote competitive equity
among depository institutions and
increase the efficiency of financial
markets. The Board also noted that the
continuing evolution of the payments
system and financial markets might lead
to further changes in operating hours,
such as opening Fedwire earlier in the
day.
The Board believes that expansion of
Fedwire operating hours would facilitate
interbank and bank customer
settlements, domestically and possibly
internationally. It believes that this
expansion of Fedwire hours should be
undertaken incrementally, with each
expansion being evaluated on its own
merits.
SUPPLEMENTARY INFORMATION:
Proposed 8:30 a.m. E T Opening Time fo r
the Fedwire Funds Transfer Service
The Board requests comment on a
proposal for an initial expansion of
Fedwire operating hours by changing the
opening time for the Fedwire funds
transfer service from 8:30 a.m. ET to 6:30
a.m. ET, effective October 4,1993.
Domestic markets could potentially
benefit from an earlier opening of
Fedwire in at least two ways. First,
futures clearing organizations could
improve the timeliness and finality of
their settlements. Second, one obstacle
to an earlier daily money settlement in
the options markets and, ultimately, to
the harmonization .of the timing of
settlements across the futures and
options markets would be eliminated.
Recommendations have been made to
improve finality and lower the volume
of payment associated with settlements
of transactions in these markets in
forums, such as the Working Group on
Federal Register / Vol. 57, No. 199 / Wednesday, October 14, 1992 / Notices
Financial Markets, and in studies by
regulatory agencies of periods of stock
market volatility.1 The benefits of
expanding Fedwire hours thus
complement efforts to enhance the
safety and efficiency of settlements for
financial instructions and thereby
reduce risks that arise in this process. In
fact, the Federal Reserve has opened
Fedwire early on certain days of
financial market stress.
The Working Group report highlighted
the linkage between the payments
system and the settlement of securities
and derivative instruments. A function
of clearing organizations is to manage
risk, especially the risk of
nonperformance by a member on its
obligation. In managing this risk, these
organizations require a reliable
mechanism for transferring funds
between themselves and their clearing
members. The Chicago Mercantile
Exchange and the Board of Trade
Clearing Corporation, for example,
currently settle transactions by 7:40 a.m.
ET on the business day following a
trade. These clearing entities believe
that settlement prior to the opening of
the next day's trading (at 8:20 a.m. ET) is
an integral part of risk-management
systems that ensure the integrity of their
markets. In order to complete
settlement, which is before the opening
of Fedwire, settlement banks make
commitments to the clearing
organizations guaranteeing the
obligations of market participants.
While these commitments provide
strong assurances to clearing
organizations and their participants that
settlement will be completed, opening
Fedwire at 6:30 a.m. ET would permit
final and irrevocable settlement by 7:40
a.m. ET.
This benefit of earlier operating hours
would likely be realized immediately.
Expansion of Fedwire operating hours
was recently recommended by the
Regulatory Coordination Advisory
Committee of the Commodity Futures
' The Working G roup on Financial M arkets w a s
formed by the President after the 1387 stock-market
break and comprises the Secretary of the Treasury
and the chairmen of the Federal Reserve Board,
Commodity Futures Trading Commission, and
Securities and Exchange Commission. A portion of
its 1S88 Interim Report of the W orking Group on
Financial Markets deals with clearing and
settlement issues, as did reports on the 1987 stockmarket break: The Commodity Futures Trading
Commission. Follow-up Report on Financial
Oversight of Stock Index Futures Markets During
October 1987, January 6,1988; U.S. Securities and
Exchange Commission, The October 1987 Market
Break, February 1988. A subsequent report by the
Securities and Exchange Commission on the events
of October 1989 also noted the relationship between
banking facilities and settlement practices, U.S.
Securities and Exchange Commission, Market
A nalysis of October 13 and 16,1989, December 1990.
Trading Commission, and the
Commission forwarded that
recommendation to the Board.2 Further,
support for such a step has been
expressed by several market
participants, futures clearing houses,
and settlement banks.
An earlier opening of Fedwire also
would remove an important obstacle to
an earlier daily money settlement for
exchange-traded options. The Options
Clearing Corporation (OCC), which
clears all exchange-traded options
contracts in the United States, currently
conducts money settlements using
Fedwire funds transfers.3 If Fedwire
were open as early as 6:30 a.m. ET and if
the OCC's settlement banks made their
facilities available sufficiently early, the
OCC could complete its daily money
settlement of the previous day's trades
prior to the opening of trading in the
most actively traded options contracts.
As the Securities and Exchange
Commission has noted, a pre-opening
settlement may add certainty to the
clearance and settlement process of the
OCC and thereby strengthen investor
confidence in the integrity of U.S.
securities and options markets.4 A pre
opening settlement at the OCC would
also constitute a step in the direction of
harmonizing the timing of settlements in
U.S. futures and options markets, which
was recommended by the Working
Group on Financial Markets. However,
the OCC has indicated to the staff that
an earlier money settlement may not be
desirable, even if Fedwire were open at
6:30 a.m. ET. In part, there is concern
that its non-Chicago settlement banks
would be unable to meet an earlier
settlement deadline. There are also
concerns that an earlier settlement
would increase the OCC’s risk of loss on
the settlement of foreign exchange
options exercises and assignments.
The proposed expanded operating
hours would apply only to the
origination of on-line Fedwire funds
transfers (i.e., transfers sent via
electronic transmission to the Federal
Reserve). The proposal would not affect
the current hours for originating off-line
transfers. Off-line institutions and
institutions that do not open for the
purpose of originating funds transfers
2 The Advisory Committee consists primarily of
futures commission merchants and their customers.
J Banks providing credit to OCC clearing
members must notify the OCC by 9:45 a m. ET that
funds will be transferred. Funds are moved to OCC
accounts at 10 a.m. and paid out by 11 a.m. The
clearing organizations for the N ew York futures
exchanges also settle with funds transfers after the
opening of Fedwire.
* See letter to W ayne P. Luthringshausen,
Chairman of the Board and Chief Executive Officer,
OCC. from W illiam Heyman, Director, Division of
Trading and Markets, February 13,1992.
47081
would continue to receive credit for
funds transfers received to their reserve
accounts; however- the Reserve Banks
would not provide advices to off-line
institutions of the receipt of funds
transfers prior to the opening of the off
line service.
The Board requests comment on the
extent to which depository institutions
and their customers would incur
significant additional costs if the
Fedwire funds transfer opening time
were changed to 6:30 a.m. ET. The Board
anticipates that relatively few
institutions will have a business need to
open their Fedwire operations earlier
than they do today. For those
institutions that choose not to open their
Fedwire operations earlier in the
morning, the Board believes that there
would be no real resource or financial
cost of an earlier Fedwire opening hour.
Those institutions that choose to open
their operations earlier in the day in
response to an earlier Fedwire opening
time may experience increased costs.
The Board anticipates that institutions
that act as settlement banks for the
futures markets and banks that hold
accounts of the clearing members may
choose to open early in order to fulfil!
their payment obligations, an d /o r
provide or obtain funding to cover
futures settlement obligations. The
settlement banks, however, may already
have the necessary credit and
operational staff available in the early
morning hours prior to the current
opening of Fedwire. To the extent that
existing staff and resources can
accommodate an early opening of
Fedwire, cost increases for these
institutions would likely be minimal.'
The increase in Reserve Bank costs
resulting from a 6:30 a.m. ET opening
time for the origination of on-line funds
transfers woul be small relative to the
total costs of providing the funds
transfer service. The incremental costs
for additional staff and computer
resources are minimal for a two-hour
expansion of the Fedwire funds transfer
operating day. Therefore, the Federal
Reservejs price for a Fedwire funds
transfer should not be materially
affected by the expanded operating
hours.
Fedwire Securities Transfer Service
Opening Time
The Board requests comment on
whether the book-entry securities
transfer service opening time for on-line
and off-line operations should be moved
to 6:30 a.m. ET, if the funds transfer
service opening time is moved to 6:30
47062
Federal Register / Vol. 57, No. 199 / Wednesday, October 14, 1992 / Notices
a.m. ET.® In particular, the Board
requests comment on the benefits of an
earlier opening o f the securities transfer
service to financial market participants.
The availability of the Fedwire funds
transfer service earlier in the day would
likely change existing payment practices
in financial markets. In the futures
markets, where credit is currently
extended on a n unsecured {or partially
secured) b asis in the morning, banks
may require funding of obligations a t the
morning settlement time. The ability to
deliver securities in the early morning
hours may be an important source of
such funding. If the securities transfer
service were open, market participants
might be able to liquidate overnight
investments, induding reverse
repurchase agreements (repos), or
complete outright sales. Alternatively,
collateral could be repositioned to
secure extensions of credit o r to deliver
directly to clearing organizations to
cover deficits in the original margin
accounts.6
Opening the securities transfer service
earlier, and thus permitting the earlier
return of collateral and delivery of other
securities transfers, would result in
debits to the reserve/clearing accounts
of the depository institutions receiving
6 W hen the Board issn ed a proposal to establish
uniform Fedwire operating hours {54 FR 41681,
October 11,1989). it requested comment on whether
both the funds transfer and the book-entry
securities transfer services should open a t the sam e
time, or whether th e book-entry securities transfer
service opening time should be later than (hat for
the funds transfer service. The majority of
commenters that addressed the question in the
context of that proposal supported the same
opening time tor the funds transfer and book-entry
securities transfer services.
Some commenters to the Board's proposal <o
establish posting procedures for measuring daylight
overdrafts (56 FR3098, January 28,1991) expressed
concern (hat they are unable to control th e timing of
incoming securities transfers, and thus w ould not be
a hie io control their aeourities-reiated daylight
overdrafts in a pricing environment. These
commenters suggested several m eans to control
securities-related overdrafts, including delaying the
opening o f the book-entry securities transfer .service
to allow institutional tim e to fund their accounts
before incoming securities are delivered.
Commenters suggested opening tim es Tanging from
45 m inutes to 3 hours after the opening erf the funds
transfer service.
6 Under the current procedures, a clearing
member with a deficit in its original margin account
must provide cash to cover that deficit at the
morning settlement. T h e se funds transfers occur
even though clearing members likely substitute
other collateral, such as Treasury securities, later in
the day. The ability to m ove collateral earlier in the
morning w ould enable the direct posting <of
collateral to cover these obligations, and (hereby
reduce this portion o f each morning's cash
payments.
The Options Clearing Corporation also requests
its settlem ent banks to debft clearing m ember
accounts for c a sh t© co ver deficits at its -morning
settlem en t A ny interbank transfers tnvolved-occur
after the opening of th e securities and funds transfer
Bervioes.
these securities transfers over Fedwire.
With respect to the earlier return of
collateral, the Board believes that the
institutions to which the -collateral is
returned may often be the banks that
clear Government securities on behalf of
dealer-customers that regularly finance
large inventories of Government
securities overnight. The intraday
financing practices of Government
securities dealers are such that the
clearing banks incur daylight overdrafts
in their Federal Reserve accounts
throughout the day, beginning in the
morning with the return of repo
collateral. An earlier opening of the
book-entry securities service would thus
lengthen the period during which the
clearing banks m ay be in overdraft due
to securities transfers. However, given
the Board's action to charge for daylight
overdrafts, banks, dealers, an d others
may attempt to control an d /o r shift
costs associated with such overdrafts
through operational and market
adjustments.
The Board requests comment on the
need to provide off-line book-entry
securities services in the early morning
hours, if the securities service opening
time were moved to 8:30 a jn . ET. The
Board recognizes th a t if the Reserve
Banks were to open the book’entry
securities transfer service a t Bi30 ajn.
ET for both on-line and off-line
securities transfers the costs incurred
by both the Reserve Banks an d off-line
depository institutions would increase.
The incremental casts that would be
incurred by the Reserve Banks would be
attributable primarily to staffing for off
line transfer operations. While these
costs are expected to be small relative
to the total costs of the book-entry
securities transfer service, the added
personnel costs may result in increased
Federal Reserve fees.
Conversely, if the Reserve Banks w ere
to open only for on-line book-entry
securities transfer services a t 6:30 ajn .
ET, institutions that access these
services off-line would not be able to
originate securities transfers an y earlier
than they can today- Incoming securities
received in the eariy morning, however,
would be automatically deposited to the
receiving institution's securities account
and its reserve /clearing account would
he debited accordingly, regardless of
whether the receiver h ad on-line or off
line access. In both cases, the receipt of
income securities might result in
daylight overdrafts in the accounts of
receiving institutions and these
overdrafts might be subject to Federal
Reserve charges.
The Board also requests comment on
the types of operational features that
may be required if it adopts an earlipr
opening time for securities transfers.
The Board recognizes that depository
institutions that do not have a business
need to participate in the eariy morning
book-entry securities transfer service
may want to have the capability to
control or prevent the receipt of
incoming transfers during the early
morning hours. In the near term,
however, the Federal Reserve’s bookentry securities transfer systems will not
be able to allow depository institutions
to elect whether or not to participate
during the early hours.
Against this background, the Beard
requests comment on the specific
benefits that depository institutions
would realize if the book-entry
securities transfer service w as opened
at 6:30 a.m. ET. The Board also requests
comment on the specific -effects on
depository institutions if the Federal
Reserve Banks’ off-line securities
operations were not available in the
early morning hours. Finally, the Board
requests comment on the extent to
which depository institutions an d their
customers would incur incremental
costs if the securities transfer opening
time were moved to 6:30 ajn . ET. In
particular, the Board requests comment
on the extent to which institutions that
choose not to open their operations
earlier may incur daylight overdraft
charges due to the receipt of securities
transfers (delivered against payment)
that exceed the institutions’ opening-ofbusiness balances.
Further Expansion o f Fedwire Operating
Hours
The Board also requests comment on
further expansion of Fedwire operating
hours in the future as market needs
develop, by opening Fedwire funds
transfer services earlier than fiJO a.m.
ET an d /o r closing for Fedwire funds
transfers later than the current 6:30 p.m.
ET close. For example, further
expansion of Fedwire funds transfer
operating hours by opening epriier than
6:30 a.m. ET could facilitate efforts to
control temporal risk associated with
the settlement of cross-border and multi
currency transactions, such as foreign
exchange transactions, while closing
later than 6:30 p m . ET could
accommodate domestic market needs in
western U.S. time zones.
Centra] banks have long been
interested in mechanisms for reducing
the settlement risks in the foreign
exchange markets. In such settlements,
for example, a n entity is often exposed
to the risk that it will pay o a t foreign
currency eariy in the -day in a foreign
financial center an d not receive a dollar
Federal Register / Vol. 57, No. 199 / Wednesday, October 14, 1992 / Notices
counter-payment later in the day.7
These risks are known as "H erstatt”
risks after the 1974 failure of Bankhaus
Herstatt, which resulted in significant
disruption to settlement practices in
place at that time.
An extension of Fedwire funds
transfer operating hours would expand
the current overlap (or reduce the
current time gaps) between payments
systems for the U.S. dollar and other
currencies. This would remove at least
one technical barrier faced by the
private sector when coordinating
settlements in multiple currencies. At
least in the near term, however, other
barriers could remain. These include the
inability to make real-time, final credit
transfers in some currencies, as well as
possible structural impediments to the
development of deep and liquid money
markets outside regular business hours.
The Board requests comment on how a
further expansion of Fedwire operating
hours could facilitate the development
of private-sector arrangements to reduce
the risks in settling cross-border and
multi-currency transactions. The Board
also requests comment on w hat other
changes would be needed in the United
States or even internationally to support
the development of these arrangements.
Some west coast depository
institutions have indicated that the
current 6:30 p.m. ET Fedwire funds
transfer close occurs too early in their
business day, and that later operating
hours would facilitate payments by west
coast institutions and their customers.
The Board requests comment on the
benefits of lengthening the Fedwire
funds transfer business day by closing
later than 6:30 p.m. ET and on the costs
and operational effects a later closing
time would have on institutions and
their customers both on the west coast
and in other areas of the country.
In summary, the Board requests
comments on the costs and benefits to
institutions and to the financial markets
of further expansions of Fedwire
operating hours. The Board recognizes
that expansion of Fedwire operating
hours may eventually result in some
operating difficulties for institutions, as
the time between the close of Fedwire
on one day and the opening of Fedwire
on the following day becomes
compressed, resulting in less time for
institutions to complete their customer
7 T od a y , dollar p a y m en ts m a d e to settle foreign
ex c h a n g e tra n sa ctio n s are o ften settle d o v e r the
C learing H o u s e Interbank P a y m e n ts S y ste m
(CHIPS), w h ic h is op era ted by th e N e w York
C learing H o u s e an d w h ic h s e ttle s at th e e n d o f the
d a y through an accoun t at the Federal R eserv e Bank
o f N e w York, u sing Fedw ire.
account updates.8 The reduction in
hours between the close of Fedwire on
one day and the opening of Fedwire on
the following day would also reduce the
time available for institutions to recover
from a major operational outage.
E ffect o f E xpanded Fedwire Operating
Hours on D aylight Overdraft
M easurem ent and Pricing
Expansion of Fedwire operating hours
raises several issues related to the
pricing of daylight overdrafts and the
timing of the posting of nonwire
transactions. The Board recently
adopted a policy to charge a fee for the
daily average value of daylight
overdrafts in a depository institution’s
account. The Board also modified the
method used to calculate an institution’s
intraday account balance. (See Docket
R-0721 elsewhere in today’s Federal
Register.)
In its action, the Board indicated that
the value of daily average daylight
overdrafts would be calculated by
dividing the sum of a depository
institution's negative account balances
at each one minute interval during the
official Fedwire funds transfer day by
the number of minutes in that day. If the
official Fedwire funds transfer service
hours were increased, the divisor in the
equation would be increased. For
example, if the scheduled opening of
Fedwire were moved to 6:30 a.m. ET, the
divisor would change from 600 minutes
to 720 minutes. The board adopted a
daylight overdraft fee equal to 60 basis
points for a 24-hour day. This fee would
be adjusted to reflect the number of
hours the Fedwire funds transfer service
is scheduled to operate. For example,
the Board has adopted a phased-in
annual rate of 25 basis points for a tenhour day (60 basis points x 10/24). For
a 12-hour operating day, the charge
would be 30 basis points (60 basis points
X 12/24).
® In determ ining the m in im um a m o u nt o f tim e
institutions require b e t w e e n the c l o s e o f on e
Fedw ire b u s in e s s d a y a n d the start of the n ex t
F ed w ire b u s in e s s d ay. the effect o f Fedw ire
e x t e n s io n s sho u ld b e tak en into co n sid era tio n.
T o d a y , the F ederal R eserv e B anks e x t e n d the
sch ed u led F e d w ir e funds transfer clo sin g tim e
a p pro x im a tely four tim es per m onth at the request
of d ep o sito ry in stitu tion s to a c c o m m o d a te n e e d s to
s e n d funds transfers late in the day. T h e majority o f
th e s e e x t e n s io n s are d u e to tem porary operating
problem s. O c ca s io n a lly , e x t e n s io n s are m a d e to
a c c o m m o d a te h e a v y trading in tim e s of m arket
stress. W h ile the m ajority o f th es e e x t e n s io n s are
for le s s than o n e hour, e x t e n s io n s h a v e b een
granted in e x c e s s o f four hours in ex trem e
circu m sta n c es. If the Board w e r e to e x p a n d the
F ed w ire funds transfer operating hours further in
th e future, p erio dic e x t e n s io n s o f the sch ed u led
F e d w ir e c lo sin g tim e could result in greater
operating difficulties, such a s co m p r e ss e d a cco un t
p o sting tim efram es, for s o m e institutions.
47083
The methodology for measuring
intraday balances in accounts at the
Federal Reserve would remain
unchanged if the Federal Reserve adopts
a 6:30 a.m. ET Fedwire opening time.
Specifically, nonwire transactions that
would be posted at the opening of
business would continue to be posted at
the scheduled opening of the Fedwire
funds transfer service, which would be
6:30 a.m. ET under this proposal. There
would be no change in the posting times
for other transactions.
Request fo r Comment
The Board requests comment on its
proposal to open the Fedwire funds
transfer service at 6:30 a.m. ET and on
the benefits and costs of an earlier
opening of the securities transfer service
and on further extensions of Fedwire
operating hours in the future as market
needs warrant. Specifically, the Board
requests comments on the following:
Proposed 6:30 a.m. E T Funds Transfer
Service Opening Time
1. Should the opening time for the
Fedwire funds transfer service be
moved to 6:30 a.m. ET?
2. Do the commenters concur with the
benefits described above for opening the
Fedwire funds transfer service at 6:30
a.m. ET? Are there benefits beyond
those identified in this notice to expand
Fedwire funds transfer operating hours
at this time?
3. Would the futures and other
clearing organizations seek to change
their settlement procedures to require
their settlement banks to settle by final
payments (i.e., Fedwire funds transfers)
at their current morning settlement time
if the Fedwire funds transfer service
were open at 6:30 a.m. ET?
4. If the Federal Reserve moved the
Fedwire funds transfer opening time to
6:30 a.m. ET, would the settlement banks
for the futures and other clearing
organizations modify their settlement
agreements to provide for settlement by
final payments at or before their current
morning settlement time? Would the
settlement banks for futures or other
clearing arrangements require clearing
members to fund their accounts at the
settlement banks prior to an early
morning settlement time routinely, or
only when volatile markets create
unusually large payment obligations?
5. Do commenters envision any near
term use of the Fedwire funds transfer
service, directly or indirectly, to control
Herstatt-type risk?
6. W hat would be the incremental
costs for depository institutions and
their customers to open the Fedwire
funds transfer service at 6:30 a.m. ET?
47084
Federal Register / Vol. 57, No. 199 / Wednesday, October 14. 1992 / Notices
Please identify the types of costs
involved (i.e., personnel, automation
resources, etc.). Would institutions’
customer accounting systems be
affected?
7. If the Board were to adopt a 6:30
a.m. ET Fedwire funds transfer opening
time in early 1993, would O ctober 4,
1993 be a reasonable effective date?
Fedwire Securities Transfer Service
Opening Time
8. Should the book-entry securities
transfer service be opened at 6:30 a.m.
ET, if the Fedwire funds transfer service
opening is moved to 6:30 ajrr.. ET? If the
securities service opening time is moved
to 6:30 a.m. ET, is it necessary to provide
off-line securities services during the
early morning hours?
9. If the futures exchange settlement
banks were to require clearing members
to fund their accounts prior to the early
morning settlem ent to what extent
would the book-entry securities transfer
system need to be open to allow the
clearing members to obtain the
necessary funding? To what extent
would clearing members fund their
obligations through their opening-ofbusiness balances, through the use of
daylight overdrafts, or by obtaining
funding in the money markets? Would
the early opening of Fedwire lead to the
development of early morning money
markets? [See also Q. 18, regarding the
development of money markets.]
10. W hat other benefits would
depository institutions an d/or their
customers realize if the securities
transfer service were opened at 6:30
a.m.?
11. W hat would be the incremental
costs for depository institutions and
their customers to open the Fedwire
book-entry securities transfer service a t
6:30 a.m. ET for on-line service only? For
on-line an d off-line services? Please
identify the types of costs involved (i.e.,
personnel, automation resources,
increased Federal Reserve daylight
overdraft charges, eta).
12. W hat would be the effect on
institutions’ intraday management of
their reserve accounts of a 6:30 ajn. ET
opening of the book-entry securities
transfer service? To w hat extent would
institutions incur early morning daylight
overdrafts due to the receipt of
securities transfers? To w hat extent
might tins be exacerbated for off-line
institutions if they are unable to reverse
incoming securities in the early morning
hours? Would institutions or then1
customers generally be able to agree
with the sender o f the securities on the
intraday timing of transfers in order to
minimize or eliminate early morning
overdrafts?
countries need to be expanded as welt?
W hat other changes would t e needed in
the United States or internationally?
18. Are there significant structural
impediments to the development of
money markets with sufficient depth
and liquidity in the U.S. o r to the
expansion of trading for same-day
settlement in foreign financial centers to
support, for example, settlement-related
funding transactions during expanded
hours?
19. Are there benefits to lengthening
the Fedwire business day by closing
later than today's normal closing times
for book-entry securities and funds
transfer? Please discuss the market
needs for a later Fedwire closing time.
20. W hat would be the costs and
operational effects of further expansion
of Fedwire operating hours to depository
institutions, their customers, and the
financial markets? {Please discuss in the
context of a scenario in which Fed wire
opens significantly earlier than 6:30 a.m.
ET an d /o r closes later than 6:30 p.m.
ET.)
21. How would further expansion of
Fedwire operating hours affect
institutions’ general ledger an d customer
accounting systems? Specifically, how
much time would be needed in the
future from the close of Fedwire to the
completion of the posting of customer
accounts for that'day? Is there a
minimum period of time required
between the close of Fedwire and the
opening of Fedwire on the next business
day to complete customer account
updates?
22. How would a further expansion of
Further Expansion o f Fedwire Operating Fedwire operating hours affect
hours
institutions' ability to recover in a timely
manner from a major operational
16. How might a further expansion of
outage?
Fedwire operating hours affect the
23. W hat other effects on financial
opportunities for the private sector to
institutions’ operations o r on financial
reduce significantly the risks of crossborder and multi-currency settlements?
markets should be taken into account
In particular, would it facilitate the
when considering further expansion of
development of a true delivery-versusFedwire operating hours?
payment mechanism for foreign
By order of the Board o f Governors of the
exchange, one in which there is
Federal Reserve System. October 6,1992.
assurance that the transfer of a foreign
William W. Wiles.
currency occurs if a n d only if a transfer
Secretary o fih e Board.
of dollars occurs? In addressing this
[FR Doc. 92-2*887 Filed 10-18-82: B:4S am]
question, please discuss why, given the
BILLING
CODE 4 3 X H M -M
current overlap of payments system
hours in the U.S. and the major
European countries, such a mechanism
does not exist for those currencies.
17. H ow early or late would Fedwirt'
hours have to b e expanded with respect
to each identified market need? For
example, how eariy would Fedwire have
to open in order to create a useful
overlap of payment hours between
Asian, European, an d LLS. time rones?
Would payments systems in other
13. W hat kinds of controls, if any,
would receivers of securities need to
have available if the securities transfer
service opened earlier m the day?
Would these controls best be provided
by the Federal Reserve in the Fedwire
securities transfer service or otherwise?
W hat effect might the use of receiver
controls have on market behavior and
efficiency? Are there other capabilities
that depository institutions would
require in a future Federal Reserve
book-entry securities transfer system if
the securities transfer opening time is
moved to 6:30 a.m. ET?
14. Under the posting rules recently
adopted by the Board, the Federal
Reserve would post U.S. Treasury and
Government Agency interest and
redemption payments by 9:15 a.m. ET
and deliver Treasury original issues to
depository institutions beginning at 9:15
a.m. ET. Operationally, the Reserve
Banks would begin releasing interest
and redemption payments at the current
opening time; this process should be
completed prior to delivery of original
issues, which would begin 45 minutes
later. If the Board were to adopt a 6:30
a.m. ET opening time, would there be a
need to adjust the time by which interest
and redemption payments should be
delivered and the corresponding time to
begin delivery of original issues of
Treasury securities? If so, what time
would be appropriate?
15. If the Board w ere to adopt a 6:30
a.m. ET opening time for the Fedwire
securities transfer service in early 1993,
would October 4,1993 be a reasonable
effective date?
@FedFRASER