CHIPS
At start of each day, participants send $$$ to a central funding account. This $$$ pool allows CHIPS 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, CHIPS nets these so only $20 million needs to move.
PATENT FLOW OF FUNDS
Bank funds CHIPS account
Bank adds optional supplemental
Bank A pays Bank B
CHIPS debits A credits B
Uses supplemental then primary
Queues if limits hit
End of day net and settle
Transaction size
High-value (typically millions)
Low to medium value
Processing speed
Same-day settlement
1–3 business days
Settlement method
Multilateral netting
Batch processing
Transaction volume
Lower volume, higher value
Higher volume, lower value
Cost structure
Higher per-transaction fee
Lower per-transaction fee
Use case focus
Large interbank transfers
Recurring payments, payroll
Payment initiation
Real-time submission
Batch file submission
Reversibility
Not reversible after settlement
Potentially reversible
Primary function
Payment clearing and settlement
Messaging network
Settlement capability
Direct settlement
No direct settlement
Currency focus
USD only
Multi-currency messaging
Geographic reach
U.S.-based, international participants
Global (200+ countries)
Transaction types
Large-value payments
Various financial messages
Operating hours
9am – 6pm ET
24/7 messaging
Participant requirements
Strict financial requirements
Broader participation criteria
Message format
Proprietary
Standardized (MT/MX formats)
Ownership
Private (The Clearing House)
Public (Federal Reserve)
Settlement method
Multilateral netting
Real-time gross settlement
Speed
Same-day settlement
Immediate settlement
Cost
Lower fees due to netting efficiency
Higher fees per transaction
Liquidity requirements
Lower (10-30% of transaction value)
100% of transaction value
Operating hours
9am – 6pm ET
9pm (prior day) – 7pm ET
Transaction finality
End of day
Immediate
Geographic scope
International focus
Primarily domestic
RESOURCES
GUIDELINES FOR FOREIGN EXCHANGE SETTLEMENT NETTING
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