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RESERVE BANK OF AUSTRALIA

Research Discussion Paper – September 2012

Payment System Design and Participant Operational Disruptions

Ashwin Clarke and Jennifer Hancock

RDP2012-05

View the Paper HTML or PDF 590K

Abstract:

Real-time gross settlement (RTGS) systems often incorporate features designed to economise on liquidity. Such ‘hybrid features’ have the potential to mitigate the systemic impact of operational disruptions of participants. This paper simulates operational disruptions of participants, using data from Australia's RTGS system – the Reserve Bank Information and Transfer System (RITS) – to analyse the effect of these hybrid features on the systemic impact of such disruptions. The results suggest that the bilateral-offset algorithm and sub-limit feature in RITS generally mitigate the impact of a participant's operational disruption, even if there is less liquidity committed to the RTGS system. The hybrid features of the Australian RTGS system also mean that the size of the participant with the operational disruption has less effect on the systemic impact of that disruption than otherwise. While a central queue, in and of itself, would tend to mitigate the impact of a participant's operational disruption, methodological issues make it difficult to draw any conclusions regarding this hybrid feature in this paper.