During the past ten years a number of countries have decided to introduce realtime gross settlement (RTGS) systems for largevalue interbank funds transfers. In the Group of Ten, nine countries are now using RTGS systems and such systems will be in operation in all G10 countries except Canada by mid1997 according to current plans. Moreover, the central banks of the European Union have collectively decided that every EU member state should have an RTGS system for largevalue transfers and that these domestic RTGS systems should be linked together to form a panEU RTGS system (the TARGET system) in order to support stage three of economic and monetary union. The use of RTGS is also growing outside the Group of Ten and the European Union. For example, RTGS systems are already in operation in the Czech Republic, Hong Kong, Korea and Thailand, and it is reported that, among others, Australia, China, New Zealand and Saudi Arabia will introduce RTGS systems in the near future.
The development of RTGS systems is one response to the growing awareness of the need for sound risk management in largevalue funds transfer systems. RTGS systems can offer a powerful mechanism for limiting settlement and systemic risks in the interbank settlement process, because they can effect final settlement of individual funds transfers on a continuous basis during the processing day. In addition, RTGS can contribute to the reduction of settlement risk in securities and foreign exchange transactions by providing a basis for deliveryversuspayment (DVP) or paymentversuspayment (PVP) mechanisms. An understanding of RTGS is thus essential when considering risk management in payment and settlement systems.
The Ad Hoc Study Group on RTGS was established by the Committee on Payment and Settlement Systems (CPSS) at its meeting in December 1994 and was asked to study various important issues relating to RTGS with a view to achieving a clearer understanding of the design and operation of RTGS systems. The Study Group examined a range of issues including (a) liquidity issues, (b) queuing arrangements, (c) message flow and information structures, (d) issues arising from the interrelationship between RTGS systems and other settlement systems, (e) monetary policy implications, and (f) the distinctions between RTGS systems and net settlement systems. The Group's study was conducted on the basis of its members' contributions on these issues as well as a detailed survey of G10 RTGS systems currently in operation or under development. The Study Group also took stock of the existing literature on RTGS. This report summarises the Group's main findings.
Throughout its study and discussions, the Study Group recognised that the design and operation of G10 RTGS systems differ noticeably. These differences partly reflect the fact that each country's system is designed to meet the needs and structure of the local banking system and that new systems often represent modifications or enhancements to previous systems or procedures. This report is intended to provide a common understanding of concepts and terminology and to describe the spectrum of views on major issues in connection with RTGS systems. It is not intended to be prescriptive.
The report is structured in three parts. Part I gives a brief overview of various key payment system concepts and the types and sources of payment system risk on the basis of analyses in earlier CPSS reports. This is intended to provide a general framework for defining and describing RTGS systems as well as for discussing RTGS system issues in the later sections. Part II then describes the generic features of RTGS systems and looks at the issues associated with their design and operation, including intraday liquidity, message flow structures and queuing arrangements. An overview of the RTGS systems in use or under development in the G10 countries is also provided in Section II.1. Some of the important factors that influence the design of RTGS systems are summarised in Section II.5. Part III looks at the use of RTGS from a broader perspective. Specifically, it considers the interrelationship between RTGS systems and other settlement systems, some possible monetary policy implications, and distinctions between RTGS systems and net settlement systems. Annex 1 provides a comparative table of G10 RTGS systems. Annex 2 presents a comparative table of selected net settlement systems.