MEDIA RELEASE No:1999-13 Date: 24 November 1999 Embargo: For Immediate Release

PAYMENT SYSTEMS AND NETTING ACT 1998:
APPROVAL OF MULTILATERAL NETTING ARRANGEMENTS

The Reserve Bank has announced that the Austraclear System and the Australian Payments Clearing Association's (APCA's) High Value Clearing System have been declared "approved multilateral netting arrangements" under the Payment Systems and Netting Act 1998.

The Austraclear System settles trades in private sector and semi-government debt securities. APCA's High Value Clearing System allows financial institutions to make irrevocable payments to one another. Both systems settle substantial trade values each day.

Transactions in these two systems are normally settled on a real-time gross settlement (RTGS) basis. However, there may be situations where one or both systems are required to revert to deferred net settlement. Without the protections of the Payment Systems and Netting Act 1998, there is a risk that if one of the participants were to default, its liquidator could attempt to "cherry pick" by forcing surviving participants to pay the gross amounts they owed the failed participant, while defaulting on the gross amounts it owed. Surviving participants could be in a much worse position than they anticipated.

By removing this risk, these approvals are a further step in strengthening the legal underpinnings of the Australian payments system.

Enquiries:
Dr John Veale Head of Payments Policy Reserve Bank of Australia SYDNEY (02) 9551 8700	Manager, Information Office Reserve Bank of Australia SYDNEY (02) 9551 9720