FNA Papers Series: No. 7 | 2024

 

Written by: 

| Dr Carlos León (FNA & Tilburg University)

Dr Kimmo Soramäki (FNA)

 

León, C., Soramäki K., (2024). The Next Generation RTGS: Liquidity Saving Mechanisms as an Overlay Service. FNA Papers, No. 7-2024, DOI Number: 10.69701/CFCZ133, [Available at: fna.fi/insights/papers-7-the-next-generation-rtgs-liquidity-saving-mechanisms-as-an-overlay-service/]

 

As many RTGS systems reach the end of their investment cycle, FNA’s Dr Carlos León and Kimmo Soramäki consider the technology the next generation of systems should employ, making the case for a Liquidity Saving Mechanism Overlay Service that separates the function of the core central bank ledger, the RTGS system and LSMs.  

An Overlay Service submits payments to the RTGS on behalf of financial institutions after the optimal timing and order for settlement are algorithmically obtained. In this paper, Leon and Soramäki suggest that separating Liquidity-saving mechanisms (LSMs) from the functioning of the RTGS system has several benefits over the existing system architecture, including: 

  • Earlier settlement with less liquidity 
  • Reduced systemic and operational risks 
  • Reduced complexity and increased resilience 
  • Easier and faster system build and updates 
  • Better alignment of incentives 
  • More value to participants and society 

 

https://doi.org/10.69701/CFCZ133

Download the Paper > 

 

About the Authors:

 

Carlos León

FNA & Tilburg University | Carlos@fna.fi

Carlos is the Director of Financial Markets Infrastructures and Digital Currencies Solutions at FNA, where he is one of the subject matter experts on network analysis for payments and financial market infrastructures. He has worked as a Senior Researcher at the Central Bank of Colombia and as a Short-term Expert for the International Monetary Fund. Carlos has published 26 articles in Scopus-indexed peer-reviewed journals that have been cited in 133 Scopus-indexed academic publications. He holds an MSc in Banking and Finance from Université de Lausanne (Switzerland) and a PhD in Finance related to network analysis from Tilburg University (The Netherlands). 

LinkedIn > 

 

 

Kimmo Soramäki

FNA | kimmo@fna.fi

Kimmo Soramäki is the Founder and CEO of FNA and the author of “Network Theory and Financial Risk”. He has over 25 years of experience working with Central Banks and Financial Market Infrastructures. In 1997 Kimmo developed the world’s first simulation model for interbank payment systems – and since then has been regularly invited to lead and contribute to simulation and payment system innovation projects with organisations like Bank of England, CLS, Payments Canada or SWIFT. He is a frequent speaker at industry events and has written over 50 articles that have been cited in more than 2000 academic publications. Kimmo has a MSc in Finance and a DSc in Operations Research, both from Aalto University (Finland).

 

 

 

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