The Effects of a Disruption in CDSX Settlement on Activity in the LVTS: A Simulation Study

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. Their results indicate that a disruptive event could lead to a considerable amount of rejected payments and payment delays. These findings highlight the importance of business continuity plans to prevent disruptions, contingency measures to ensure that delays are short, and mitigating actions that can be taken to reduce the impacts of a disruption when it does occur.