From LVTS to Lynx: Quantitative Assessment of Payment System Transition

Ajit Desai, Zhentong Lu, Hiru Rodrigo, Jacob Sharples, Phoebe Tian and Yinan Nellie Zhang

Staff Working Papers from Bank of Canada

Abstract: Modernizing Canada’s wholesale payments system to Lynx from the Large Value Transfer System (LVTS) brings two key changes: (1) the settlement model shifts from a hybrid system that combined components of both real-time gross settlement (RTGS) and deferred net settlement (DNS) to an RTGS system; (2) the policy regarding queue usage changes from discouraging it to encouraging the adoption of the new liquidity-saving mechanism. We utilize this unique opportunity to quantitatively assess the effects of those changes on the behaviour of participants in the high-value payments system. Our analysis reveals the following: (1) At the system level, most payments are settled in a single stream with the liquidity-savings mechanism in Lynx—facilitating liquidity pooling and leading to higher efficiency than LVTS where payments were distributed in two streams. Moreover, due to Lynx’s liquidity-saving mechanism, many payments arrive earlier than those in LVTS, providing more opportunities for liquidity saving at the cost of slightly increased payment delay. (2) At the participant level, the responses are rather heterogeneous; however, our analysis suggests that liquidity efficiency is improved for several participants, and most experience slightly longer payment delays in Lynx than in LVTS.

Keywords: Financial institutions; Financial services; Financial system regulation and policies; Payment clearing and settlement systems (search for similar items in EconPapers)
JEL-codes: C10 E42 G28 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2023-04
New Economics Papers: this item is included in nep-ban, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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