High value cash netting utility under scrutiny by eight global banks

Source: Cash Netting Services

A new payments netting initiative for high value payments is being assessed by eight leading global banks. Cash Netting Services (CNS) will help banks to reduce daily interbank payment flows significantly - and associated liquidity and capital management obligations.

Eight banks are collaborating with CNS to gauge the size of the bilateral netting opportunity, and associated benefits in respect of improved cash and liquidity management practices and processes.

It is estimated that some US$10 trillion a day is paid, gross, between banks, even after other asset specific netting (e.g. FX through CLS) and payments compression (e.g. CHIPS). The largest banks in each currency represent 15% to 45% of total payments value. To support such huge daily flows, over US$1trillion of high quality liquid assets are required to be held in bank payment systems, with a corresponding impact on intraday liquidity efficiency and opportunity cost.

CNS addresses interbank payment and liquidity inefficiencies by identifying payment netting opportunities between banks. CNS analyses high value payments data from participating banks and, at agreed times, calculates and publishes net cash positions per currency between pairs of banks (providing details of ALL payments included in the net calculation). Net payment obligations are determined by bilateral netting agreement (by currency) between pairs of participating banks. In accordance with the terms of these agreements, participating banks receive payment messages in SWIFT format to facilitate net payments.

The company (formed by Nick Dyne and John Barber, previously behind the development of Logicscope, the market leader in post trade FX confirmations) is underpinned by CGI’s technology and infrastructure. (CGI is one of the leading providers of payments and netting infrastructures and services to global banks and payment systems). The initiative also incorporates the services of leading legal and financial consultancy firms.

The CNS service will be fully implemented in 2018.

Nick Dyne, Cash Netting Services said: “The real cost to banks of supporting high value global payments, and opportunity cost of having cash tied up to support them, is US$10s of billions a year. The enthusiasm of 8 of the world’s largest global banks in providing comprehensive and detailed payments data to us to determine the size of the netting opportunity is a great endorsement of the potential value of the CNS service”.

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