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Technical Note: Elimination of Retroactive Settlement in the ACSS

By Eric Tuer

Abstract

Effective 1 November 2003, the Bank of Canada abandoned its practice of backdating the results of settlement of payments through the Automated Clearing Settlement System (ACSS). It has adopted instead a system of "next-day" settlement under which the results of the settlement process will appear on the central bank's books on the day the items actually settle in the ACSS. Since July 1986, settlement of these items had occurred at noon the day after items were presented for clearing, but the results were recognized on the Bank's books the previous day, through backdating, or "retroactive" settlement. The new system should simplify the payment process and improve the reporting of settlement risk, as well as promote cost-effectiveness within the payment systems. ACSS participants have agreed among themselves to implement an interest-compensation mechanism in order to avoid imposing a float charge on their customer base.

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