1. Fedwire Funds and Securities Services Paul Agueci Wholesale Product Office Federal Reserve Bank of New York October 10, 2007

2. Fedwire Services F A large-value transfer system with two components: –a computerized capability to record individual funds and securities transfers as they occur, and –a high-speed nationwide communications network linking all FRBs with depository institutions F Two separate services –Fedwire Funds, and –Fedwire Securities.

3. Fedwire Funds Services Fedwire Funds Service. F Real-Time Gross Settlement (RTGS) – individual transfer instructions are processed immediately, as received. F Transactions are initiated by sender of funds. F Fedwire funds transfers are used to handle a variety of time-critical and/or large-value payments. There are two types of Fedwire funds transfers: F Bank-to-bank settlement transfers F Third-party transfers

4. Fedwire Securities Service Fedwire Securities Service: F Delivery Versus Payment (DVP) – securities transactions involve a simultaneous exchange of valuables. Fedwire Securities Service includes: F Safekeeping –For all marketable US Treasury securities, many federal agency securities, government sponsored enterprise securities, and certain international agency securities F Transfer/Settlement –Securities are moved between accounts either free or against payment; transfers are initiated by senders. –Transactions are initiated by sender of securities.

5. Fedwire Funds Service History F 1914: Federal Reserve Banks (Fed) open. F 1918: Fed introduces dedicated funds transfer network using Morse Code. F 1930s: Fed begins to use teletype machines. F 1953: Fed implements automatic messaging using AT&T equipment. F 1970s: Fed introduces first computerized, high-speed electronic telecommunications and processing system. F 1980s: Fed introduces current network – FedNet.

6. Fedwire Securities Service History F 1921: the US Treasury (Treasury) permits telegraphic transfer of physical securities. F 1965-67: Treasury and Fed introduce marketable Treasury securities in book-entry form. F 1970s: majority of securities issued in book-entry form. F Late 1980s: Treasury stops issuing securities in definitive form.

7. Fedwire Service History Technological Progress Progress continues…. F Distributed processing is in use. F Internet protocol (IP) based customer access to Fedwire via a FedLine Advantage connection. F IP access for computer interface customers via a FedLine Direct connection.

8. Fedwire Funds Service Transfer Messages F Volume and Transaction Value –Average daily volume – 532,300 –Average daily value - $2.3 trillion –Average daily value per transfer - $4.3 million –Total transfer originated – 133.6 million –Total annual value - $572.6 trillion Statistics from December 2006

9. Fedwire Securities Service Transfer Messages F Volume and Transaction Value –Average daily volume - 88,800 –Average daily value - $1.5 trillion –Average daily value per transfer - $16.9 million –Total transfer originated – 22.3 million –Total annual value - $377.3 trillion Statistics from December 2006

10. Fedwire Securities Service F Total par value - $37.8 trillion –US Treasury bills, bonds and notes – $4.4 trillion –Debt securities of several federal agencies – $2.8 trillion –Mortgage-backed securities - $30.6 trillion –International organizations - $51 billion Statistics from December 2006

11. Fedwire Securities Service Safekeeping F Larger number of mortgage-backed securities issues than Treasury securities F Approximately 1.1 million mortgaged backed securities compared to 200 Treasury securities F However, Treasury transaction volume is 58% of total transfer volume

12. Fedwire Securities Service Issuers Some of the major issuers are: F US Treasury F Ginnie Mae F Fannie Mae F Federal Home Loan Mortgage Corporation (Freddie Mac) F Federal Home Loan Banks (FHLBanks) F World Bank For complete list see, Fedwire Securities Service Issuer Guide. http://www.frbservices.org/Wholesale/FedwireSecuritiesGuide.html

13. Fedwire Securities Service Securities Accounts F Participants hold securities in one or more securities accounts F Accounts may be restricted or unrestricted (restricted accounts used primarily to collateralize funds deposited with participants, such as government deposits)

14. Fedwire Securities Service Securities Accounts F The Federal Reserve Banks keep records of securities issues held by participants in each of their accounts F Individual participants are responsible for maintaining records to identify securities held on behalf of their customers, etc.

15. Fedwire Securities Service Transfer F Settlement for most government securities transfers occurs over the Fedwire Securities Service, which is a real-time, delivery-versus-payment system that allows immediate, simultaneous transfer of securities against payment F Transfers are final, although a receiver has the option to reverse or return securities

16. Fedwire Securities Service Additional Functionality F Automated Claim Adjustment Processing (ACAP) –Fail, Interim, and Repo claim adjustments processed for all mortgage backed securities. Note: Repo is short for Repurchase Agreements

17. Fedwire Service Users Direct access to the Fedwire services is provided to: F U.S. depository institutions (generally include commercial banks, mutual savings banks, federal savings banks, savings and loan associations, credit unions, and bankers banks as defined in the Federal Reserve Act), F Agreement and Edge Act corporations, F U.S. branches and agencies of foreign banks, and F the U.S. Treasury, other federal agencies, and federally- sponsored enterprises.

18. Fedwire Funds Service Users F Fedwire Funds Service: –Approximately 8,900 customers. –25 customers account for 67% of transfer volume and 74% of transfer value originated. –Third-party or bank customer transactions account for over 88% of transfer volume.

19. Fedwire Securities Service Users F Fedwire Securities Service: –Approximately 7,600 customers. –25 customers account for 98% of transfer volume, and 2 customers account for over 70% of transfer volume. F Most transfers are processed by two banks that provide clearing services to the major government securities dealers F Netting services provided by the Fixed Income Clearing Corp, compare and net trades, then effect final delivery of securities on the Fedwire Securities Service.

20. Fedwire Funds Service Legal Legal underpinnings of the Fedwire Funds Service: F State law adopted in all states: UCC Article 4A F Federal regulation adopted by the Board of Governors of the Federal Reserve: Regulation J, subpart B F Federal Reserve Banks Operating Circular 6: Funds Transfers Through Fedwire

21. Fedwire Securities Service Legal Legal underpinnings of the Fedwire Securities Service: F Federal Regulations adopted by the Department of the Treasury (and corresponding GSE and agency regulations) –Regulations Governing Book-Entry Treasury Bonds, Notes and Bills (31 C.F.R. Part 357 Subpart B). F State law adopted by all states: UCC Articles 8 and 9. F Federal Reserve Banks Operating Circular 7: Fedwire Securities Account Maintenance and Transfer Services. F Each issuers regulations establish a federal legal framework governing the transfer of rights and interest in securities by Fedwire participants.

22. Fedwire Service Operating Hours F Funds –Operates from 9:00 p.m. ET through 6:30 p.m. ET, the next day (21 ½ hour processing day) F Securities –Operates from 8:30a.m. ET to 3:30 p.m. ET, but open until 7:00 p.m. ET for repositioning F Extensions may be made under special circumstances, such as operational problems at a major participant

23. Fedwire Securities Service Operations F Securities transfers may cause daylight overdrafts in depository institutions Federal Reserve accounts F Controlled by: net debit caps, limits on size of individual transfers, collateralization of some overdrafts, measurement, and fees

24. Fedwire Services Cost Recovery F Monetary Control Act of 1980 –Mandated that the Federal Reserve price its services to recover (over the long run) its full cost of production. F Wholesale Product Office must consider all costs when calculating fees: –Fixed and variable costs –Imputed costs (Private Sector Adjustment Factor) PSAF is based on an estimate of the taxes and cost of capital the Fed would incur if it were a private firm. F Cost recovery is calculated at a national level and the goal is 100% recovery

25. Fedwire Services Fees F Fedwire Funds Service –Per transfer of first 2,500 transactions : $0.29 –Per transfer of transaction 2,501-80,000 : $0.19 –Per transfer of transactions over 80,000 : $0.09 F Fedwire Securities Service –Agency transfers are $.34 per send or receive; $16 per account/per month; and $.40 per issue/per account/per month –Treasury transfers are $.31 per send or receive; but no account maintenance fees are charged if only Treasury securities are held in the account –ACAP entries are $.30 per entry Fees structure for 2006

26. Additional Information F The Fedwire Disclosure Framework for Securities Settlement Systems is available on FRBNYs internet page: www.ny.frb.org/bankinfo/services/bookentry.html www.ny.frb.org/bankinfo/services/bookentry.html F A description of the service and the Operating Circulars are available on the Federal Reserves Financial Services website: www.frbservices.org