Tuesday, February 20,
2018 06.49AM / Bank Of England
The first meeting of the
RTGS renewal programme: Global Liquidity Management workshop was held in
The Bank of England ‘the
Bank’ has established a progamme to renew its Real Time Gross Settlement (RTGS)
service. In January 2018, as part of this programme, the Bank invited members
of the payments community to participate in a workshop on Global Liquidity
The purpose of the
workshop was to discuss the possibility of offering on-demand repo liquidity
generation in CREST as a means to source CHAPS liquidity.
The session discussed use
cases and risks as well as potential benefits relative to the current
arrangements for intraday liquidity generation. The outputs of the session will
be used to inform design of the new RTGS service.
The key points to emerge
- The Bank explained the existing process of
generating collateralised liquidity in CHAPS.
The current options are using reserve balances,
posting collateral with BoE or posting Euro cash to the BoE account in
Participants highlighted that many CHAPS members
are organisations with global reach, operating in different systems and
currencies. The key objective for these organisations is to tailor
liquidity and collateral to where it's most needed. Real-time information
across systems and efficiency of moving collateral are therefore key
CHAPS membership is also set to expand. Future
arrangements need to have the flexibility to meet varied needs. The
intraday liquidity arrangements should not pose a barrier to entry.
Increasing FPS transaction limits could result in
an increase in liquidity needs, and will not necessarily occur intraday.
- Many attendees thought that a single dashboard,
showing sterling liquidity positions across systems (CHAPS, CREST, retail),
would be a very useful addition. It could also allow users to make
liquidity movements across accounts.
Proposal to generate
liquidity via CREST
briefly explained the history of the CREST Auto-Collateralised Repo (ACR)
mechanism in CREST. ACR generates liquidity by collateralising UK government
securities to make up for liquidity shortfalls within CREST. It automatically
creates and destroys liquidity, exactly tailored to the liquidity need in
Bank introduced the proposal, suggested in an earlier workshop, to utilise the
CREST Auto-Collateralised Repo mechanism to generate liquidity for CHAPS.
The options suggested were:
1. On-demand. A member manually puts in a request
for CREST liquidity via the CHAPS interface. The system then repos
securities in CREST and transfer the funds to member’s CHAPS account.
2. Automatic. An extension of the first option
would also allow members to set simple rules that then ensure liquidity
thought that the ability to generate CHAPS liquidity via CREST ACRs on-demand
could be beneficial. It would give more flexibility, and utilise existing
mechanisms that are proven to work well.
ACRs could be used to generate liquidity in RTGS, participants could keep more
securities in CREST and improve the efficiency of collateral utilisation.
Currently, participants need to have the majority of liquid assets in CHAPS,
moving it to CREST when needed.
Bank could try and enable this process for those that are not members of both
systems. ACRs currently can be provided to non-settlement CREST members.
appetite for automation of this functionality will vary across different
organisations, based on the complexity of their liquidity management and level
automated approaches would need to have strict guidelines and feature an
ability to override the automated transfers. Some members suggested that
automated alerts could be used instead, alerting to a potential need to move
liquidity when pre-determined thresholds were reached.
3. A&T Advisory Limited
4. UK Finance
6. Societe Generale
7. JP Morgan
8. Faster Payments
13. ACI Worldwide
15. BNP Paribas
16. Virgin Money
18. Northern Trust
21. FS Management Consultants
24. Bank of England
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