Banking Investigate

The Effects Of A Disruption In CDSX Settlement On Activity In The LVTS: A Simulation Study

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Executive Summary

The Large Value Transfer System (LVTS) for settling large payments, and CDSX for settling debt and equity trades, are two of the main settlement systems in Canada. They are closely linked; for example, at the end of the day the final CDSX payment obligations must settle on the Bank of Canada's books, with payments made through the LVTS. CDSX settlement payments account for an important portion of LVTS activity. Therefore, any event that disrupts CDSX settlement may have systemic implications for the LVTS. Through simulation analysis, the authors quantitatively assess the potential impacts of a disruption to CDSX settlement on LVTS activity, and examine the mitigating actions implemented during such an event.

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