CPMI Consults on Longer Payment, Settlement, Windows
Posted by Colin Lambert. Last updated: November 19, 2021
The Committee on Payments and Market Infrastructures (CPMI) has issued a new consultation document looking into extending and aligning payment system operating hours for cross-border payments. One of the proposals is for a global settlement window that will operate at the optimal time of day to connect to as many national RTGS (real-time gross settlement) systems as possible, something that will significantly enhance the opportunities for PvP (payment vs payment) in FX markets.
The consultative report Extending and aligning payment system operating hours for cross-border payments has been issued as part of the G20 cross-border payments programme, and focuses on the operating hours of RTGS systems, which are considered key to enhancing cross-border payments. An extension of RTGS operating hours across jurisdictions could help address current obstacles, thereby increasing the speed of cross-border payments and reducing liquidity costs and settlement risks, CPMI says.
The document is the result of a survey of central banks from 82 jurisdictions, and 62 RTGS systems around the world were analysed and three potential “end states” for extending the operating hours of key payment systems were posited:
- End state 1 is an increase in operating hours on current operating days. If undertaken by multiple jurisdictions, this would help to close daily gaps in RTGS operating hours, primarily on standard working days given that most jurisdictions’ RTGS systems are closed on weekends and public holidays.
- End state 2 involves an extension of operations to additional days on which many RTGS systems don’t currently operate. If undertaken by multiple jurisdictions, this would help to close the gaps created by holidays and weekends.
- End state 3 is the extension of operating hours to 24/7. Very few RTGS systems currently provide near 24/7 service. Doing so would likely require substantial operational changes but, if broadly adopted, this would largely remove frictions for cross-border payments arising from gaps in opening times.
The report also introduces the concept of a “global settlement window” – the period when the largest number of RTGS systems simultaneously operate. This would be, the paper suggests, between 06:00 and 11:00 GMT, which is currently the time period during which the highest number of RTGS are concurrently operating.
Currently, the report observes, RTGS operating hours vary “significantly” and gaps exist across nearly all CMPI and non-CPMI jurisdictions – exceeding 20 hours per day in some cases. It observes that with relatively minor changes to the operating times of some RTGS, extended links with other countries’ payments systems can be realised.
To this end, the report says a global settlement window is not intended to be a target in and of itself, but rather a key consideration in each jurisdiction’s decision-making process. As an example, the paper says that if Brazil extended its RTGS operating hours by 60 minutes, it would increase its overlap with 18 CPMI jurisdictions – by extended by three and a half hours, Brazil would achieve full overlap with the global settlement window.
CPMI is inviting responses to the paper, the closing date for which is 14 January 2022.
The Full FX View
While it might seem as though this is an obvious innovation – and frankly one wonders why it has taken 11 years to get to this suggestion – there are clearly challenges for some countries in extending their RTGS window. If the global settlement window were to be implemented, it would provide a huge boost to the FX market’s efforts to reduce what the BIS identified as sizeable settlement risk in 2019.
The suggested global window would also align closely with the current CLS window of 5-10am GMT, however it would probably lead to CLS aligning its operation with this window, or, perhaps extending it by one hour. If 62 RTGS are able to align with the global window, it would also help extend the benefits of PvP to those currencies not supported by CLS.