1. Reforming Payment & Securities Settlement Systems November 3-7, 2003 Gary M. Bertone Vice President Wholesale Product Office Federal Reserve Bank of New York Gary.Bertone@ny.frb.org

2. 2 ® Fedwire is a registered servicemark of the Federal Reserve Banks Wholesale Product Office – Fedwire ® –Funds Service –Securities Service – National Settlement Service

3. 3 “ A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Winston Churchill

4. 4 Topics Networks Processing Platforms Customer Interaction

5. 5 Networks Mature Telecom Infrastructures Broad access to a variety of services Many telecom providers Telecom diversity issues Less Mature Telecom Infrastructures Limited access to small number of services Small number of telecom providers Telecom diversity issues

6. 6 Networks Mature Telecom Infrastructures Telecom diversity issues – More telecom providers means more competition, which translates to lower prices – More infrastructure (e.g., COs and LECs) to choose from should equate to better diversity in connection routing but.... – More infrastructure also means it is difficult/costly to get accurate routing information and difficult to ensure that diversity is maintained Less Mature Telecom Infrastructures Telecom diversity issues – Fewer companies means less competition and higher prices – Less infrastructure means less diversity increasing the single points of failure – Less infrastructure also means it should be easier to get accurate routing information

7. 7 Networks Mature Telecom Infrastructures Broad access to a variety of services Many telecom providers Telecom diversity issues We have built our own access network Less Mature Telecom Infrastructures Limited access to small number of services Small number of telecom providers Telecom diversity issues Build or buy an access network

8. 8 Processing Platforms Sending Institution Receiving Institution Fedwire Primary Production Site Third Site Warm Backup XRF Recovery Federal Reserve Infrastructure Frame Relay or Dial-up Connection Frame Relay or Dial-up Connection Dedicated Connection Fedwire Processing Environment Fedwire Primary Production Site Third Site Warm Backup Second Site Hot Backup FEDNET

9. 9 Processing Platforms Legacy systems very reliable mature environmental and application software solid change control processes robust, integrated monitoring tools harder to make dynamic changes not based on open communication standards (IP) getting harder to find people that can support older technologies cost to support old platforms while building new ones Newly developed systems based on open communication (IP) and application (XML) standards easier to make dynamic changes large pool of people available to support systems (global pool) no costs for maintaining old platforms less reliable less mature environmental and application software (constant changes) immature change control processes immature integrated monitoring tools Good News Bad News

10. 10 Customer Interaction The Fed has gone through quite a change over the last 6 years as its relates to our approach to getting customer input on the operation of, and changes to our high value payment system These changes are focused on how, when, and on which issues we seek customer input I want to discuss three areas: Formal comment process, Customer advisory groups, Conferences/vendor seminars

11. 11 Customer Interaction Formal Comment Process publish anticipated changes to our payment system service offerings in the Federal Register for all to comment on established norms for allowing time for the public to review the suggested changes and submit comments to us we will review the comments, possibly make changes based on those comments, and publish the final plan not all changes require this formal process to be used

12. 12 Customer Interaction Advisory Groups We have two advisory groups – Highest volume customers – Mid-Tier volume customers Benefits of these groups – provides direct and timely information about the requirements of our customers – gives us the opportunity to test new ideas early, and in a less formal way – helps to build support for changes – forces us to ensure we have a business case for all changes we make – provides keen incite into what is happening in our markets

13. 13 Conferences/Vendor Seminars These have proved to be a great way to provide a wide variety of customers, vendors, and other payment system providers with information about our services And to get input on the changes we are planning to make and/or are in the process of implementing Customer Interaction

14. 14 “ A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Winston Churchill