Journal of Financial Market Infrastructures

Payment system design and participant operational disruptions

Ashwin Clarke and Jennifer Hancock


Real-time gross settlement (RTGS) systems often incorporate features designed to economize 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 analyze the effect of these hybrid features on the systemic impact of such disruptions. The results suggest that the bilateral-offset algorithm and sublimit 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 suffering the operational disruption has less effect on the systemic impact of that disruption than it would 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. These results could be considered when deciding what features to include in the design of a large-value payment system or when establishing market practices for how participants should respond to an operational incident.

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