Euroclear UK & Ireland offers dollar settlement in central bank money through the Federal Reserve

Euroclear UK & Ireland (EUI) has become the first foreign financial market infrastructure to connect to the Federal Reserve’s National Settlement Service, enabling clients to settle transactions in US dollars efficiently and safely in central bank money.

EUI is now able to offer all three of its settlement currencies – US dollars,
pound sterling, and euros – in a central bank payment model.
This new central bank US dollar settlement model addresses residual
intra-day credit and operational risks between settlement banks that
existed in the previous commercial bank money model. As a result,
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. The settlement banks in turn 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.

Previously, settlement banks undertake end of day bilateral US dollar
settlement in commercial bank money. In this model one settlement bank
could be exposed to end of day credit and operational risk due to the
failure of another settlement bank to pay. In this new multilateral model,
EUI calculates settlement bank positions and instructs payments directly
onto accounts at the Federal Reserve Bank of New York through its
National Settlement Service.

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. This provides payment protection and certainty
against the risk of intra-day insolvency events between settlement banks.
This process is in line with the highest international standards including
the Principles for Financial Market Infrastructures of the Committee on
Payments and Market Infrastructures (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.

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.”
Euroclear UK & Ireland (EUI) is the central securities depository (CSD) of the United Kingdom (including Jersey, Guernsey and the Isle of Man) and
Ireland for domestic securities.