Payments Canada partnered with FNA to design and build a Digital Twin of Lynx in order to understand the impacts of certain configurations and participant behaviours on intraday liquidity through simulated scenarios prior to the implementation of Lynx.

 

Introduction

 

Payments Canada owns and operates the national payments systems in Canada. The payment systems it operates facilitate the safe and secure exchange of billions of dollars each day and are essential mechanisms that support the smooth operation of the Canadian economy. 

The systems that Payments Canada operates include Canada’s RTGS system, Lynx, which launched in September 2021. It replaced the previous system, the Large Value Transfer System (LVTS), established in 1999. Replacing LVTS with Lynx meant updated technology and also a risk model that involved liquidity savings mechanisms and multiple settlement mechanisms.

 

 

Challenge

 

Despite the benefits a new RTGS system would offer in mitigating settlement risks, there were concerns of increased liquidity needs compared to LVTS which was regarded as very liquidity efficient.  Furthermore, questions remained over whether participant behaviour would change and what implications that may have on intraday liquidity risk. 

 

 

 

Solution

 

Aware of the simulator Kimmo Soramäki (FNA’s Founder and CEO) built for the Bank of Finland, Payments Canada engaged FNA to create a Digital Twin of the new Lynx system and used it to explore Liquidity Saving Mechanisms through simulation-based research using actual and artificial Canadian Payments data.

The Ditial Twin allowed Payments Canada to develop multiple scenarios using assumptions for liquidity levels, participant behaviours, and system configurations to simulate outcomes based on several months of historical payments data. Payments Canada analyzed the results of each simulated scenario and used the insights gained to inform the design of the subsequent scenario

 

Benefits

 

In the spirit of transparency, the simulation results were shared with each LVTS participant, including the Bank of Canada, over a 2-year period in advance of the launch of Lynx. This is beneficial for many reasons: 

  • Sharing simulation results gave participants and Payments Canada a deeper understanding of how the new system would function from the perspective of liquidity needs and provided valuable insights into how the liquidity savings mechanisms in Lynx should be configured.

 

  • Sharing simulation results allowed participants to question the assumptions used in each scenario and to actively participate in their refinement. The end result was that participants were as comfortable as possible with their liquidity needs and the new settlement model several months prior to launch, allowing them sufficient time to prepare their internal processes.

 

David Millard, Financial Market Risk, Payments Canada, added: 

“FNA’s technology is unique in the marketplace as it allows us to design, stress test and monitor a complex system such as our Lynx interbank payment system.”

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