RDP 2012-05: Payment System Design and Participant Operational Disruptions 3. Australia's RTGS System

RITS has operated as an RTGS system since 1998.^[3] Over 90 per cent of interbank settlements, by value, in Australia are settled on a gross basis through RITS; this share has been broadly steady since RITS commenced operations.^[4] In 2011, RITS settled on average around 35,500 transactions each day, with an average total value of $171 billion, using around $16 billion of liquidity. Liquidity in RITS is sourced from overnight balances held in participants' accounts at the Reserve Bank of Australia (RBA) and additional funds made available to participants by the RBA via interest-free intraday repurchase agreements (repos). Access to these funds is limited only by participants' holdings of eligible securities. In the sample period, RITS had 59 direct participants, although the system is quite concentrated; the 4 major Australian banks are counterparts to almost 60 per cent of transactions settled through RITS.

The central queue in RITS operates on a ‘bypass first-in first-out (FIFO) basis’.^[5] If the transaction being tested for settlement cannot be settled individually, the bilateral-offset algorithm searches for up to 10 offsetting transactions (based on the order of submission), which it attempts to settle simultaneously.^[6] RITS participants have access to real-time information, including their settled and queued payments and receipts. RITS incorporates a sub-limit feature that assists participants in managing their payments by allowing them to reserve liquidity for ‘priority’ payments. Balances below the sub-limit set by participants are reserved for settlement of ‘priority’ transactions. In contrast, ‘active’ payments are only tested for settlement against balances in excess of the sub-limit. ‘Deferred’ payments are not tested for settlement until the sending participant changes the status of the payment to either active or priority, which can be done at any time prior to settlement.

Approximately 30 per cent of the value of RITS payments settled in 2011 were settled by means of a bilateral offset, while just under 20 per cent were settled as priority payments, using liquidity protected by sub-limits (Figure 1). A quarter of the value of payments in RITS is settled between 3.00 pm and 5.00 pm, during which time around 40 per cent of priority payments are made. In contrast, RITS volumes are concentrated at the beginning of the day, with a large number of small payments settling around 9.15 am, which is immediately after the opening of the main RTGS settlement session.^[7]

Footnotes

For more information on RTGS in Australia see Gallagher, Gauntlett and Sunner (2010). [3]

The remaining 10 per cent of interbank settlements in RITS are settled in deferred net batches. [4]

Payments are tested for settlement in the order of submission, but rather than stopping if the first payment cannot be settled immediately, the system moves on to test the next payment in the queue for settlement, and so on, looping back to the first payment when it reaches the end of the queue. [5]

In July 2009, the RBA added a ‘targeted’ bilateral-offset algorithm, which allows participants to select specific payments for bilateral offset. [6]

RITS opens at 7.30 am but RTGS payments on behalf of customers are only eligible for settlement after 9.15 am. [7]