Fed Makes Proposal to Reorganize Services For Net Settlement that It

The Federal Reserve Board on Wednesday proposed revamping the net settlement services it offers banks.

Under the proposal, banks would be allowed to settle transactions between 8:30 a.m. and 4 p.m. eastern time. The settlement would become final that day.

The service is expected to be used primarily by check clearing houses, which would present the net debit or credit for each member institution. The Fed would post those entries, either adding or subtracting funds from each institution's reserve accounts.

The parties would have to send the settlement instructions to the Fed electronically, using Fedline or other on-line services. The electronic file would include a unique code identifying the particular transaction. Once the Fed verifies the authenticity of the parties, it would check if they have sufficient funds in their reserve accounts before completing the deal.

"The transfer of funds from the Federal Reserve account of a settling participant would be treated as a final and irrevocable transaction," the Fed said.

The Fed asked for comments on whether the new system should replace two existing settlement services it offers. It hopes to provide the service by the end of 1998. Comments are due in 60 days.

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