Design and simulation of financial market infrastructures

Kimmo Soramäki and Samantha Cook

Financial market infrastructures (FMIs) are institutions that manage and implement the settlement, clearing and recording of financial transactions. FMIs are critically important for the functioning and stability of financial markets and of the financial system overall. FMIs are regulated and monitored by central banks as well as international organisations such as the Bank for International Settlements (BIS), the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO). Categories of FMI include payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories. Our focus in this chapter is on large value payment systems.

Payment systems form the backbone for all financial transactions. Fedwire, the large value payment system in the US, processed over US$3 trillion in transactions per day in 2020, while the TARGET2 system in Europe processed nearly €2 trillion per day. Due to the immense value of transactions processed and their fundamental role in the functioning of financial markets and the implementation of monetary policy, payment systems are of

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