Netting

multilateral = network bilateral = between counterparties

IDN Liquidity Algorithm

At start of each day, participants send $$$ to a central funding account. This $$$ pool allows XFT to settle faster, larger payments via multilateral netting.

• Multilateral netting: Offsets obligations across the entire network

• Bilateral netting: Offsets payment obligations between two banks

Bilateral netting: If your bank owes another bank $100 million, and that bank owes your bank $80 million, XFT nets these so only $20 million needs to move.

LIQUIDITY MECHANISM FLOW OF FUNDS

1. Bank funds IDN wallet

2. Bank adds optional supplemental

3. Bank A pays Bank B

4. XFT debits A credits B

5. Uses supplemental then primary

6. Queues if limits hit

7. End of day net and settle​

Liquidity saving mechanisms

• Offsetting algorithm

• Time-varying tariff

• Payment splitting

Why liquidity saving mechanisms when IDN = instant + zero counterparty risk?

Bank balance sheet + large-value payments still require prefunding/cash on hand. Accelerate working capital flows for RDFI leg.

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RESOURCES

GUIDELINES FOR FOREIGN EXCHANGE SETTLEMENT NETTING

What is Netting? How Does Netting Work?

Payment Systems, Comptroller's Handbook

Wholesale Payment Systems, FFIEC’s Handbook

Automated Clearing House, NCUA Examiner’s Guide

About ACH Payments, PayPal

System and method for intraday netting payment finality with supplemental funding

FedNow and Faster Payments in US

Liquidity saving in real-time gross settlement systems