Payment and Settlement System Simulator
The Bank of Finland provides a payment and settlement system simulator, called BOF-PSS3. It is meant for analysing and quantifying various risks in financial market infrastructures (FMI). The payment and settlement system simulator has been distributed to more than 80 institutions including central banks, clearing houses, research institutes and universities.
The simulator is capable of replicating payment and securities settlement systems. It is adaptable for modelling multisystem setups that can be combinations of payment, securities settlement systems and even cash central counterparties (CCP). The simulator supports agent-based modelling (ABM) which allows to extend simulations to incorporate behavioral rules for participants’ active decision making and more realistic modelling.
More details can be found in the User Manual BOF-PSS3 1.04.
The simulator can be used to fulfil some of the regulatory requirements stated in the principles for financial market infrastructures (PFMI) and by the Basel Committee on Banking Supervision (BCBS), such as identifying liquidity and credit risks in FMIs.
The simulator can be used for:
- Stress testing
- Systemic and counterparty risk analysis
- Identification of critical counterparties
- Liquidity analysis
- Settlement performance analysis
- Algorithm testing and development
- Network analysis
- Rule change evaluations
- Evaluation of effects of changes in account and system structures like in mergers and system consolidations.
- System development and prototyping
- System performance benchmarking
In contrast to static calculations of indicators, the simulation results naturally incorporate network (or systemic) effects arising from the payment flows and the technical properties of the infrastructures themselves. The results obtained from simulations are directly interpretable and have a self-evident meaning which is not always the case with alternative indicators. The results can be used directly for risk management purposes, for example when evaluating the liquidity risks of counterparts or sufficiency of liquidity buffers and margins. Computer simulations take advantage of using the available information in full without losing micro-level information due to indicator aggregations.
The simulator is freely available for research purposes and has already been introduced in numerous countries. It is possible to tailor and adapt the simulator to specific payment or securities settlement systems. Several adaptations have been made, like for .
The simulator team provides training, consultation and tailored adaptations which are priced for cost recovery. Trainings and consultations are organized on demand except the entry level training held the days before the yearly simulator seminar. Both can be held on site or online. The standard two-day training course on the use of the BoF-PSS3 Simulator for new users and beginners contains presentations on the functioning of the simulator, hands on simulation exercises and illustrative examples. During the course, participants are actively involved in using of the BoF-PSS3 Simulator. For more details please take contact.