Euroclear UK and Ireland (EUI) has become the first foreign financial market infrastructure to connect to the Federal Reserve’s Settlement Service.
This enables clients to settle transactions in US dollars efficiently and safely in central bank money.
In a central bank payment model, EUI is now able to offer all three of its settlement currencies, which include US dollars, pound sterling, and euros.
According to EUI, this new central bank US dollar settlement model addresses residual intraday credit and operational risks between settlement banks that existed in the previous commercial bank money model.
Consequently, customers of each settlement bank are assured that they will receive the dollar cash proceeds of a sale of securities from the moment that each transaction settles in EUI.
In turn, the settlement banks are protected against the risks they take on each other through the process of settling in central bank money and have a more efficient and controlled settlement process.
The ability of settlement banks to make the required payments in the Federal Reserve accounts is underpinned by funds held by the banks with the Bank of England, EUI revealed.
This provides payment protection and certainty against the risk of intra-day insolvency events between settlement banks.
Meanwhile, the process is in line with the highest international standards including the Principles for Financial Market Infrastructure of Committee on Payments and Markets Infrastructure (CPMI) and the International Organization of Securities Commissions (IOSCO).
John Trundle, CEO of Euroclear UK & Ireland commented: “We are extremely pleased to be able to offer this unique and path-breaking service through the Federal Reserve.”
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“The connection to the National Settlement Service strengthens the robustness of US dollar settlement for our clients, provides greater visibility and efficiency of the settlement process, and a reduction in systemic risk. It is a great step forward for our industry.”
