Template-Type: ReDIF-Paper 1.0
Author-Name: Rodney Garratt
Author-X-Name-First: Rodney
Author-X-Name-Last: Garratt
Author-Name: Morten Linnemann Bech
Author-X-Name-First: Morten
Author-X-Name-Last: Linnemann Bech
Author-Name: Marko Nanut Petric
Author-X-Name-First: Marko
Author-X-Name-Last: Nanut Petric
Author-Name: Caner Ates
Author-X-Name-First: Caner
Author-X-Name-Last: Ates
Title: Auction-based liquidity saving mechanisms
Abstract: This paper introduces a novel liquidity-saving mechanism (LSM) for real-time gross settlement (RTGS) systems based on an auction framework. Unlike conventional queue-based LSMs that optimise payment netting given pre-committed liquidity, the proposed mechanism reverses the process by eliciting bids from participants to establish mutually beneficial liquidity-sharing arrangements. These arrangements are supported through side payments from liquidity receivers to liquidity providers, ensuring incentive alignment. The mechanism is evaluated using agent-based simulations calibrated with transaction data from four RTGS systems: BCRP-RTGS (Peru), SAMOS and SADC-RTGS (South Africa), and SIC (Switzerland). Across all trials, auction success rates averaged 79% (ranging from 62 to 100%). These success rates were sufficiently high that observed failures typically did not increase liquidity usage. Overall, the findings demonstrate the importance of side payments in coordinating participant incentives, reveal the trade-off between liquidity efficiency and settlement delay, and highlight the potential of auction-based LSM designs to enhance RTGS system efficiency.
Creation-Date: 2025-12
File-URL: https://www.bis.org/publ/work1318.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1318.htm
File-Format: text/html
Number: 1318
Keywords: payment system, liquidity savings mechanism (LSM), real-time gross settlement (RTGS) system, auctions
Classification-JEL: G21, C72, D44
Handle: RePEc:bis:biswps:1318