Protection of deferred net payment and securities settlement systems: the examples of SIT and Relit

As the last stage in the risk-prevention programme for the Paris financial centre, the securing of deferred net settlement systems concerns the SIT interbank clearing system, the retail payment system for customer transactions, and Relit, the securities delivery-versus-payment system, which in particular processes transactions effected on the regulated market Euronext Paris. The Banque de France, which is in charge of overseeing the smooth functioning of payment and securities settlement systems has taken the step of asking the French banking community to strengthen the security of the SIT and Relit systems. The aim of this initiative to enhance security (or built-in protection) is to protect these systems, in compliance with the applicable international standards, from settlement risk. The risks borne by the participants in SIT and Relit are systemic in character and this has been accentuated by the recent developments in the European environment in which these systems operate. The protection mechanisms defined for these two systems display similar features: protection against the failure of the participant with the largest settlement obligation, establishment of a permanent common mutual fund for each of the two systems, supplemented where necessary by individual collateral, setting of ceilings for transactions exchanged, and use of central bank money holdings as collateral. The implementation of these safety mechanisms for SIT and Relit will involve various players, who will accordingly take on new responsibilities: participants in the two systems, the administrator of the guarantee fund (a role which will fall to the operator of each of the two systems: GSIT for SIT and Euroclear France for Relit), as well the depository for collateral, which will be the Banque de France.