Payments netting

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Payments netting

Reducing fund transfers between affiliates to only a netted amount. Netting can occur on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).

Payments Netting

A way of settling transactions that minimizes the need for funds and securities to actually change hands. To give a very simple example, suppose a brokerage buys shares in a company for $100,000 and later sells them back to the original owner for $120,000. A payments netting method would have the securities stay with the original owner and mandate that this owner transfer $20,000 to the brokerage. Payments netting can be complex because of the number of actors involved, but maximizes the likelihood that, at the end of the trading day, every party has received exactly what it should have, and no more. Clearing houses provide most payment netting services.
References in periodicals archive ?
CLS announces that CLSNet, a standardized, automated bilateral payment netting service for over 120 currencies operating on a distributed ledger technology (DLT) platform, is now live with Goldman Sachs and Morgan Stanley.
CLSNet has been designed to standardize and increase the levels of payment netting in the FX market for trades not settling in CLSSettlement.
A standardized and automated payment netting process will lead to improved intraday liquidity, reduced cost, improved operational efficiencies and ultimately support business growth.
The impact of limited payment netting is exacerbated by the high settlement costs associated with emerging market currencies, despite their increased relevance for FX market participants.
In the securities markets, each clearinghouse for corporate and municipal securities has established a payment netting scheme with its associated depository, and several organizations are discussing ways to share (and thereby reduce the need for) collateral.
CLS Group (CLS), a leading provider of risk management and operational services for the global foreign exchange (FX) market, has announced its intent to release a payment netting service, CLS Netting, for buy-side and sell-side institutions FX trades that are settled outside the CLS settlement service.
The global FX market is limited by the lack of a standardized payment netting process for trades not settled within CLS.
This existing capability, combined with the companys position as a trusted post-trade partner, means CLS is ideally placed to deliver a service that will standardize and expand bilateral payment netting capabilities for the entire FX market.
The first type is a "pure" payment netting arrangement in which credit transfers are processed among participants, with settlement across the Federal Reserve's books at the end of the day.
At present, CHIPS is the only "pure" payment netting arrangement for large-value transfers operating in the United States.6 It is the largest payment netting system in the world and processes nearly $1 trillion in payments daily.