Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices 66249

1ACH Vision 2000 Task Force Recommendations,

NACHA, 1997; The Role of the Federal Reserve and

the Banking Industry in the Retail Electronic

Payments Systems of the Future, The Bankers

Roundtable, April 1998.

inspection at the Federal Reserve Bank

indicated. The application also will be

available for inspection at the offices of

the Board of Governors. Interested

persons may express their views in

writing on the standards enumerated in

the BHC Act (12 U.S.C. 1842(c)). If the

proposal also involves the acquisition of

a nonbanking company, the review also

includes whether the acquisition of the

nonbanking company complies with the

standards in section 4 of the BHC Act

(12 U.S.C. 1843). Unless otherwise

noted, nonbanking activities will be

conducted throughout the United States.

Additional information on all bank

holding companies may be obtained

from the National Information Center

website at www.ffiec.gov/nic/.

Unless otherwise noted, comments

regarding each of these applications

must be received at the Reserve Bank

indicated or the offices of the Board of

Governors not later than November 27,

2000.

A. Federal Reserve Bank of Atlanta

(Cynthia C. Goodwin, Vice President)

104 Marietta Street, N.W., Atlanta,

Georgia 30303–2713:

1. Capital City Bank Group, Inc.,

Tallahassee, Florida; to acquire 20.75

percent of the voting shares of First

Peoples Bankshares, Inc., Pine

Mountain, Georgia, and thereby

indirectly acquire voting shares of First

Peoples Bank, Pine Mountain, Georgia.

B. Federal Reserve Bank of Chicago

(Phillip Jackson, Applications Officer)

230 South LaSalle Street, Chicago,

Illinois 60690–1414:

1. Northwest Suburban Bancorp, Inc.,

Mount Prospect, Illinois; to acquire 100

percent of the voting shares of Village

Bank and Trust, North Barrington,

Illinois.

Board of Governors of the Federal Reserve

System, October 30, 2000.

Robert deV. Frierson,

Associate Secretary of the Board.

[FR Doc. 00–28229 Filed 11–2–00; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM

Notice of Proposals To Engage in

Permissible Nonbanking Activities or

To Acquire Companies That Are

Engaged in Permissible Nonbanking

Activities

The companies listed in this notice

have given notice under section 4 of the

Bank Holding Company Act (12 U.S.C.

1843) (BHC Act) and Regulation Y, (12

CFR part 225) to engage de novo, or to

acquire or control voting securities or

assets of a company, including the

companies listed below, that engages

either directly or through a subsidiary or

other company, in a nonbanking activity

that is listed in § 225.28 of Regulation Y

(12 CFR 225.28) or that the Board has

determined by Order to be closely

related to banking and permissible for

bank holding companies. Unless

otherwise noted, these activities will be

conducted throughout the United States.

Each notice is available for inspection

at the Federal Reserve Bank indicated.

The notice also will be available for

inspection at the offices of the Board of

Governors. Interested persons may

express their views in writing on the

question whether the proposal complies

with the standards of section 4 of the

BHC Act. Additional information on all

bank holding companies may be

obtained from the National Information

Center website at www.ffiec.gov/nic/.

Unless otherwise noted, comments

regarding the applications must be

received at the Reserve Bank indicated

or the offices of the Board of Governors

not later than November 17, 2000.

A. Federal Reserve Bank of Chicago

(Phillip Jackson, Applications Officer)

230 South LaSalle Street, Chicago,

Illinois 60690–1414:

1. Midwest Banc Holdings, Inc.,

Melrose Park, Illinois; to acquire

through its subsidiary, Midwest

Financial and Investment Services, Inc.,

Elmwood Park, Illinois, Service 1st

Financial Corporation, Elmwood Park,

Illinois, and thereby engage in securities

brokerage activities, pursuant to

§ 225.28(b)(7)(i) of Regulation Y.

Board of Governors of the Federal Reserve

System, October 30, 2000.

Robert deV. Frierson,

Associate Secretary of the Board.

[FR Doc. 00–28230 Filed 11–2–00; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM

[Docket No. R–1037]

Federal Reserve ACH Deposit

Deadlines and Pricing Practices for

Transactions Involving Private-Sector

ACH Operators

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Notice.

SUMMARY: The Board has approved a

new approach to pricing automated

clearing house transactions that the

Federal Reserve Banks exchange with

intermediaries that are defined as

operators under the operating rules of

the National Automated Clearing House

Association. The Reserve Banks will

initiate discussions with the privatesector ACH operators (PSOs) to

negotiate the structure and level of fees

that will be charged by the Reserve

Banks for processing interoperator

transactions as well as those fees that

the Reserve Banks will pay the PSOs.

The Reserve Banks will work

collaboratively with the PSOs to

establish deposit deadlines by which

they would exchange interoperator

transactions with each other and to

address other operational issues. To

permit time for necessary software

modifications, the new interoperator

deposit deadlines will be implemented

by the Reserve Banks no later than June

2001 while the new fees will be

implemented no later than September

2001.

FOR FURTHER INFORMATION CONTACT: Jack

K. Walton II, Manager, Retail Payments

Section (202/452–2660); Michele Braun,

Project Leader, Retail Payments Section

(202/452–2819); or Jeffrey S. H.

Yeganeh, Senior Financial Services

Analyst, Retail Payments Section,

Division of Reserve Bank Operations

and Payment Systems (202/728–5801);

for the hearing impaired only, contact

Janice Simms, Telecommunication

Device for the Deaf (202/872–4984).

SUPPLEMENTARY INFORMATION:

I. Background

The Federal Reserve Banks are

collectively the nation’s largest

automated clearing house (ACH)

operator and process more than 80

percent of commercial interbank ACH

transactions. PSOs process the

remaining transactions and typically

provide services, including processing

and settling ACH transactions, similar to

those offered by the Reserve Banks.

PSOs and the Reserve Banks rely on

each other for the processing of some

transactions in which either the

originating depository financial

institution (ODFI) or receiving

depository financial institution (RDFI) is

not their customer. These interoperator

transactions are settled by the Reserve

Banks.

Some industry representatives have

expressed concerns that the Reserve

Banks’ price and service level policies

have created barriers to open and

vigorous competition among ACH

operators because the policies do not

recognize the role played by operators

in the ACH system.1 Specifically, these

representatives have maintained that the

Reserve Banks’ deposit deadlines and

66250 Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices

2 In developing the proposed price structure for

interoperator transactions, the Reserve Banks used

a cost-based approach to set fees. The Reserve

Banks attempted to identify costs related to network

access, processing, and settlement and to price

those components separately. Further, the Reserve

Banks excluded certain costs that might not be

incurred when services are provided to ACH

operators so that the interoperator fee structure

would reflect, as closely as possible, the cost

structure for interoperator transactions.

3The Reserve Banks would no longer provide

customer service to depository institutions for

transactions they send or receive through a PSO.

These institutions would have to direct transaction

and service-related inquiries to their PSOs. The

Reserve Banks, however, would continue to provide

customer service on settlement-related questions.

4Responses from trade associations were

included with the organizations they present. Two

trade associations (The American Bankers

Association and The Association for Financial

Professionals), however, did not fall into one

specific category and are listed separately.

5 Immediate settlement items are settled on the

same banking day as they are received while nextday settlement items are settled one or two banking

days after they are received. The Reserve Banks’

banking day for the receipt of ACH items is from

3 a.m. eastern time to 2:59 a.m. eastern time on the

next calendar day. Only return items and National

Association of Check Safekeeping items are eligible

for immediate settlement.

price structure do not permit the PSOs

to compete effectively in the provision

of ACH services to depository

institutions.

In response to the industry’s

concerns, the Board requested comment

last year on the benefits and drawbacks

of modifying the Reserve Banks’ deposit

deadlines and pricing practices for ACH

transactions exchanged with PSOs (64

FR 27793, May 21, 1999). Specifically,

the Board requested comment on

whether the Reserve Banks should (1)

modify their deposit deadlines and

processing schedules, (2) modify their

price structure for interoperator

transactions, and (3) limit any

modifications to PSOs only. Based on

comments received, the Board

concluded that adopting certain

modifications to the Reserve Banks’

deposit deadlines and price structure for

ACH transactions exchanged with PSOs

would enhance competition in the

provision of ACH operator services to

depository institutions.

In May 2000, the Board requested

comment on a proposal to modify the

Reserve Banks’ deadlines and pricing

practices for ACH interoperator

transactions that would promote

competition in the provision of ACH

services and address the concerns raised

by some commenters (65 FR 34183, May

26, 2000). Specifically, the Board

proposed the following modifications to

the deadlines and price structure for

ACH interoperator transactions that are

processed by the Reserve Banks:

• Deposit deadlines: The Board

proposed that the Reserve Banks work

collaboratively with ACH operators to

establish interoperator deposit

deadlines by which the Reserve Banks

and the PSOs would exchange

interoperator transactions.

• Price structure: The Board proposed

the following price structure for

interoperator transactions processed by

the Reserve Banks with price ranges

based on preliminary cost analyses by

the Reserve Banks.2 Further, the Reserve

Banks indicated that they planned to

maintain the current fee structure for

their customers and did not anticipate

any increases in fees resulting from this

proposal.

—First, the Reserve Banks would charge

ACH operators a monthly network

access fee of between $5 and $10 for

each routing number they access on

the Reserve Banks’ ACH network.

—Second, the Reserve Banks would

charge ACH operators a per-item fee

of between $0.002 and $0.004 for

transactions they send through the

Reserve Banks’ ACH network.

—Third, the Reserve Banks would

charge depository institutions that

send and receive all their

transactions through PSOs a

monthly settlement fee of about $20

rather than the current monthly

account servicing fee of $25.3

—Fourth, the Reserve Banks would

pay PSOs for commercial and

government ACH transactions they

send to depository institutions

through those PSOs. Fees paid by

the Reserve Banks to the PSOs

would compensate the PSOs for the

services they provide the Reserve

Banks by delivering transactions to

RDFIs. PSOs would not be required

to adopt the Reserve Banks’ price

structure and fees for transactions

sent to them by Reserve Banks but

rather could establish their own

price structure and fees.

• Eligibility: The Board proposed

limiting the modified deadlines and

price structure to intermediaries that are

defined as ACH operators in the

operating rules of the National

Automated Clearing House Association

(NACHA).

II. Summary and Analysis of Comments

The Board received twenty-nine

responses to its request for comment.

The following table shows the number

of comments received by category of

commenter: 4

Commenters Number

Small banks, thrifts, and credit

unions .......................................... 9

Large banks .................................... 6

ACH associations ........................... 3

Bankers’ banks and corporate

credit unions ................................ 3

Private-sector operators ................. 3

Federal Reserve Banks .................. 2

Trade associations ......................... 2

Clearing houses .............................. 1

Commenters Number

Total ......................................... 29

Overall, fifteen commenters

supported and fourteen commenters

opposed the Board’s proposal. Those

supporting the proposal generally

tended to be smaller depository

institutions; however, the American

Bankers Association, two large banks, a

bankers’ bank, and the Reserve Banks

supported the proposal as well. These

commenters believed the proposal

would enhance competition. They also

believed that the proposal reflected a

balanced approach towards addressing

the competitive concerns of PSOs and

the pricing concerns of small banks.

Those opposing the proposal generally

tended to be PSOs, ACH associations,

and larger banks; however, two

corporate credit unions, a clearing

house, and the Association for Financial

Professionals opposed the proposal as

well. These commenters believed that

the proposed modifications would not

improve competition in the provision of

ACH services and were primarily

concerned that the proposed price

structure would exacerbate current

competitive imbalances.

A. Deposit Deadlines

Summary of Comments—In its May

2000 request for comment, the Board

proposed that the Reserve Banks work

collaboratively with ACH operators to

establish interoperator deposit

deadlines by which the Reserve Banks

and the PSOs would exchange

interoperator transactions. The Reserve

Banks’ preliminary recommendation

was that one interoperator deposit

deadline be established at 2:30 p.m.

eastern time for immediate settlement

items and that another interoperator

deposit deadline for next-day settlement

items be established at 3 a.m. eastern

time.5 Under the proposal, PSOs would

continue to be free to establish other

deadlines by which they would

exchange interoperator transactions

among themselves. Further, all ACH

operators, including the Reserve Banks,

would be free to establish deposit and

delivery deadlines for their customers.

Almost all commenters supported the

Board’s proposal to modify deposit

deadlines. Commenters indicated that

Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices 66251

6The Board understands that some depository

institutions that use a PSO prefer to minimize the

number of settlement entries they receive for their

ACH transactions. Most of these institutions already

receive and reconcile two settlements—one from

their PSO, another from the Reserve Banks—and do

not want to receive a third settlement for ACH

transactions that PSOs exchange directly using the

Private ACH Exchange (PAX) system. Thus, PSOs

use the Reserve Banks to send some transactions

destined to other PSOs, which minimizes the

number of settlement entries for a given institution

but results in three-operator transactions.

the proposal provided an excellent

starting point for discussions between

the Reserve Banks and PSOs to establish

deposit deadlines for interoperator

transactions. These commenters

believed that the preliminary

recommendation would help level the

playing field between Reserve Banks

and PSOs and thus improve

competition. Further, they believed that

because the Reserve Banks currently

receive almost all of their next-day item

deposits well in advance of the 3 a.m.

deposit deadline, most Reserve Bank

customers would not be adversely

affected. Most commenters believed that

the deposit deadline modifications

could be implemented independent of

the remainder of the proposed

modifications and that the Reserve

Banks and PSOs would have to address

a number of technical issues, such as

how to handle requests for deadline

extensions.

One commenter, however, indicated

that it would not be in favor of

modifications that would shorten

current deposit deadlines for Reserve

Bank customers. Wachovia Bank noted

that while the adverse impact of

changes in deposit deadlines on Reserve

Bank customers might be minimal, the

Board should avoid any adverse impact.

Another commenter, ABN AMRO, also

voiced concerns about the potential

earlier Reserve Bank customer deposit

deadline for next-day items and

suggested that the Board’s long-term

goal should be to make the deadline

later than it is today.

When it requested comment, the

Board noted the problems posed by

transactions that involve three

operators. Currently, some of the

transactions that PSOs deposit with the

Reserve Banks are destined to other

PSOs, which results in some

transactions being processed by three

operators.6 With interoperator deposit

deadlines, however, if an operator

receives a transaction from another

operator at the interoperator deposit

deadline that is destined to a third

operator, the middle operator would be

unable to forward the transaction timely

because the deadline to deposit

transactions with the third operator

would have already passed. To address

this issue, the Board suggested that

NACHA evaluate whether its ACH

operator definition should be revisited

to require operators to exchange

interoperator transactions directly with

the operator serving the RDFI. In any

case, to ensure that the Reserve Banks

are able to forward the transactions to

the RDFI’s operator by the interoperator

deposit deadline, the Board proposed

that the Reserve Banks require all ACH

transactions that need to be forwarded

to another operator, including

transactions deposited by a PSO, be

deposited by the Reserve Banks’

customer deposit deadline.

Commenters believed that the threeoperator transaction issue could be

addressed through NACHA operating

rules but were careful to note that any

NACHA operating rule modifications

should not result in a degradation of

service to RDFIs. The Chicago Reserve

Bank, however, suggested that files

deposited with the Reserve Banks by a

PSO that contain transactions destined

to a third operator should not be eligible

for modified deadlines and pricing.

Board Analysis—The Board has

concluded that the Reserve Banks

should work collaboratively with ACH

operators to establish interoperator

deposit deadlines by which the Reserve

Banks and the PSOs would exchange

interoperator transactions. The PSOs

would continue to be free to establish

other deadlines by which they would

exchange interoperator transactions

among themselves. Further, the Reserve

Banks and the PSOs would be free to

establish deposit and delivery deadlines

for their customers.

Based on the comments received in

response to its request for comment, the

Board believes that establishing

interoperator deposit deadlines by

which Reserve Banks and the PSOs

would exchange transactions would

enhance the competitive environment

with minimal operational impact on

Reserve Bank customers. Preliminary

discussions between the Reserve Banks

and the PSOs suggest that the

interoperator deposit deadline for

immediate settlement items would

likely be set at 2:30 p.m. eastern time

and the interoperator deposit deadline

for next-day settlement items would be

set at 3:00 a.m. eastern time. As a result,

PSOs should be able to deliver

transactions to RDFIs earlier than they

do today, which should result in

competitive RDFI delivery schedules

between the Reserve Banks and PSOs.

Assuming these deadlines are adopted,

the Reserve Banks’ customer deposit

deadline for next-day items will be

adjusted to permit the Reserve Banks to

forward interoperator transactions to

PSOs by the 3:00 a.m. deadline. Reserve

Bank customer deposit deadlines will be

finalized after the Reserve Banks and

the PSOs set the interoperator deposit

deadlines. In addition, the Reserve

Banks and the PSOs will work together

to address technical operational issues

to ensure that the ACH system operates

as efficiently and effectively as possible.

The new interoperator exchange

deadlines will be implemented no later

than June 2001.

The Board agrees with commenters

that the three-operator transaction issue

should be addressed through NACHA

operating rules. Accordingly, the Board

recommends that NACHA revisit its

ACH operator definition and require

operators to exchange interoperator

transactions directly with the operator

serving the RDFI. Further, to ensure that

the Reserve Banks are able to forward

interoperator transactions by the

interoperator deposit deadline, the

Reserve Banks will require all ACH

transactions that need to be forwarded

to another operator, including

transactions deposited by a PSO, be

deposited by the Reserve Banks’ regular

customer deposit deadline. The Board

anticipates that the adoption of

interoperator exchange deadlines will

enable the Reserve Banks and PSOs to

offer RDFIs competitive delivery

schedules and believes that ODFIs will

be able to modify their deadlines or

operational procedures to meet an

earlier Reserve Bank customer deposit

deadline for next-day items.

B. Price Structure for Interoperator

Transactions

Summary of Comments.—

Commenters were split on the

appropriateness of the proposed price

structure for interoperator transactions

processed by the Reserve Banks.

Supporters believed that the proposed

price structure would promote

competition in the provision of ACH

operator services. Some supporters of

the proposal, however, indicated that

their support was premised on the

assumption that these pricing changes

would not result in higher fees to

Reserve Bank customers, a result they

would oppose.

Commenters opposing the proposed

price structure believed that it would

not correct the current competitive

inequities and could possibly harm

competition. These commenters

suggested that the proposed price

structure would permit the Reserve

Banks to continue to dominate the

market for ACH operator services. These

commenters believed that the proposal’s

use of network access fees based on the

66252 Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices

7Several commenters appeared to have

misconceptions about the proposed price structure.

For example, Visa USA misunderstood the Board’s

proposed network access fee as applying to all

routing numbers on the Reserve Banks’ ACH

network. The Board’s proposal, however, stated that

the Reserve Banks would charge PSOs a network

access fee only for those routing numbers to which

they actually sent transactions. Due to this

misinterpretation, Visa significantly overestimated

the fees that PSOs would pay for access to the

Reserve Banks’ ACH network under the proposed

price structure. Similarly, the American Clearing

House Association (ACHA) misinterpreted the

Board’s proposal as restricting how PSOs could

establish fees they would charge Reserve Banks for

interoperator transactions and as requiring PSOs to

adopt a price structure that was based on the

Reserve Banks’ ACH cost structure. The Board’s

proposal indicated that the proposed price structure

was how the Reserve Banks would charge PSOs for

accessing the Reserve Banks’ ACH network. The

proposal did not require, as suggested in ACHA’s

response, that the PSOs adopt the proposed price

structure when they set fees for Reserve Bank access

to the PSOs’ ACH networks. Indeed, the Board’s

concern about a potential escalation in the fees that

operators might charge each other indicates that the

Board recognized that operators would likely charge

each other different fees under different price

structures.

8The negotiated fees would apply to both

commercial and government ACH transactions that

the Reserve Banks send to depository institutions

through PSOs.

9NACHA recently adopted modifications to its

definition of an ACH operator (NACHA Operating

Rules, section 13.1.1). To qualify as a private-sector

ACH operator, an entity must execute an agreement

with NACHA to comply with or perform all of the

following: adhere to NACHA operating rules and

other applicable laws and regulations; execute

agreements with a minimum of twenty independent

depository institutions that bind the depository

institutions to NACHA operating rules and the ACH

operator’s rules; provide clearing, delivery, and

settlement services for intraoperator transactions;

exchange interoperator transactions with other ACH

operators; process and edit files based on the

requirements of NACHA operating rules; evaluate

the creditworthiness of and apply risk control

measures to their customers; adhere to the Federal

Reserve’s Policy Statement on Privately Operated

Multilateral Settlement Systems; and adhere to any

NACHA performance standards for ACH operators.

Under this definition, Electronic Payments

Network, Visa, and American Clearing House

Association are considered to be private-sector ACH

operators. The Reserve Banks reserve the right to

establish their own operator definition should they

number of RDFI routing numbers

accessed and per-item fees based on the

volume of transactions processed did

not accurately reflect the Reserve Banks’

cost structure. As a result, these

commenters believed that the proposed

structure would threaten the viability of

PSOs and would result in PSO

customers subsidizing Reserve Bank

customers. These commenters

recommended that the Reserve Banks

and the PSOs exchange interoperator

transactions at par, i.e., with no fees

being assessed. If par exchange were not

possible, commenters suggested

recovering the network access costs

through per-item fees.7

The Board also requested comment on

how the fees that operators would

charge each other might be restrained.

The Board was concerned that an

operator might be able to charge other

operators excessive fees for access to

RDFIs on its network if RDFIs were

unwilling to accept the delivery of ACH

transactions directly from multiple

operators. The Board was also

concerned about fee increases to

Reserve Bank and PSO customers that

could result from potentially spiraling

interoperator fees as the Reserve Banks

and PSOs attempted to cover the costs

of interoperator transactions by charging

each other higher fees. The Board noted

that it believed that maintaining low,

cost-based interoperator fees would

enhance the continued growth of the

ACH network.

Commenters stated that the Federal

Reserve does not have the legal

authority to restrain or impose the fees

that PSOs charge the Reserve Banks.

These commenters noted that the

potential need for fee restraints

suggested that the proposed price

structure was not economically viable.

These commenters believed that the

only restraints on interoperator pricing

should be market-based. If interoperator

fees become unreasonable, operators

could establish direct connections to its

competitors’ customers thereby

bypassing the operator assessing the

unreasonable fees. These commenters,

nevertheless, believed that restraints

would not be necessary because it is

likely that PSOs would charge Reserve

Banks the same fees they are charged by

the Reserve Banks. Other commenters,

however, suggested that the Reserve

Banks should negotiate interoperator

fees with the PSOs and that Reserve

Banks should not pay PSOs a higher fee

than they charge the PSOs. By adopting

these approaches, these commenters

indicated that the Reserve Banks could

ensure that their customers are not

subsidizing the PSOs’ operations.

Board Analysis—The Board has

approved a new approach to pricing

interoperator transactions. As the Board

noted in its request for comment, the

Reserve Banks expend resources when

they receive, process, and deliver

interoperator transactions. Thus,

exchanging interoperator transactions at

no charge, as suggested by some

commenters, could lead to inefficiencies

in the processing of ACH transactions.

The Board, however, has determined

that the proposal to recover network

costs through a network access fee based

on the number of routing numbers

accessed by PSOs would not be an

appropriate component of a price

structure for interoperator transactions.

Based on its analysis of comments,

the Board has concluded that the

Reserve Banks should initiate

discussions with the PSOs to negotiate

the structure and level of fees that

would be charged by the Reserve Banks

for interoperator transactions as well as

those fees that the Reserve Banks would

pay the PSOs. The Board believes that

negotiations between the Reserve Banks

and PSOs should result in interoperator

fees that would enhance competition in

the provision of ACH operator services.8

The Board has also approved, as

originally proposed, the settlement fee

that would be assessed to depository

institutions that send and receive all

their transactions that are processed by

the Reserve Banks through PSOs.

Specifically, the Reserve Banks would

charge a monthly settlement fee of about

$20 per routing number, rather than the

current monthly account servicing fee of

$25, to settle interoperator transactions

processed by the Reserve Banks for

institutions that do not send ACH

transactions directly to or receive ACH

transactions directly from the Reserve

Banks. This fee would enable Reserve

Banks to recover the costs associated

with settling interoperator transactions

processed by the Reserve Banks.

In addition, the Board has determined

that PSOs should pay a reduced

electronic connection fee. PSOs are

currently charged electronic connection

fees in accordance with the Reserve

Banks’ fee schedules. PSOs use their

electronic connections to send

interoperator transactions to the Reserve

Banks. The Reserve Banks, however,

also use these electronic connections to

send interoperator transactions to the

PSOs. As a result, Reserve Banks derive

benefits from these electronic

connections similar to those derived by

the PSOs. Thus, the Board believes that

the Reserve Banks should charge the

PSOs only half the electronic

connection fees they are being charged

currently.

The Board anticipates that the new

price structure would be implemented

no later than September 2001. The

specific implementation date of prices

for interoperator transactions will be

announced well in advance of the

effective date.

C. Eligibility

Summary of Comments—The primary

distinction between ACH operators, as

defined by NACHA rules, and other

intermediaries is that operators provide

clearing, delivery, and settlement

services for intraoperator transactions

and exchange interoperator transactions

with other operators.9 Third-party

Federal Register / Vol. 65, No. 214 / Friday, November 3, 2000 / Notices 66253

object to any future modifications to NACHA’s

definition of an ACH operator.

10Federal Reserve Regulatory Service, 7–145.2.

processors typically do not provide

settlement services for transactions they

process while correspondent banks

typically do not provide the

comprehensive clearing and delivery

services provided by operators. Thus,

the Reserve Banks tend to compete with

PSOs, and not third-party processors or

correspondent banks, in providing

services to depository institutions.

Commenters strongly supported the

use of NACHA’s operator definition to

determine eligibility for deadline and

price structure modifications. The

Federal Reserve Banks of Chicago and

Richmond, however, opposed the use of

NACHA’s operator definition. The

Chicago Reserve Bank believed that,

given some of the arbitrary aspects of

NACHA’s operator definition, limiting

eligibility for deadline and price

structure modifications to

intermediaries that meet NACHA’s

operator definition could worsen the

competitive position of other ACH

intermediaries vis-a ́-vis operators and

the Reserve Banks. The Richmond

Reserve Bank believed that limiting

eligibility to only a certain group of

intermediaries that provide all of

components of the bundle of services

that comprise ACH operator services

would be inconsistent with the spirit of

the proposal, which recognizes the

improved competitive environment

associated with unbundling services.

Board Analysis—The Board has

concluded that the Reserve Banks’

deadline and price structure

modifications be limited to any

intermediary that is defined as an

operator under NACHA rules. The

Board believes that the role of Reserve

Banks in the ACH system is analogous

to the role played by PSOs. ACH

operators play a significant role in

protecting the integrity of the overall

ACH network and ensuring its

interoperability and efficiency, a role

that is separate and distinct from the

role of other ACH intermediaries.

Further, while the Board believes that

certain aspects of NACHA’s operator

definition could be strengthened, the

current definition does not preclude

other entities from becoming new

operators and competing with

established operators.

II. Competitive Impact

The Board conducts a competitive

impact analysis when it considers a

major operational change, such as that

being proposed for ACH interoperator

transactions. 10 Specifically, in its

analysis, the Board has assessed

whether the interoperator deadlines and

price structure would have a direct and

material adverse effect on the ability of

other service providers to compete

effectively with the Reserve Banks in

providing similar services, and if so,

whether the adverse effect on

competition is due to differing legal

powers or constraints, or due to a

dominant market position deriving from

such legal differences.

The purpose of the deadline and price

structure modifications discussed above

is to further enhance the competitive

environment for ACH operator services.

These modifications should enhance the

ability of PSOs to compete with the

Reserve Banks in providing ACH

operator services to depository

institutions. Specifically, PSOs will be

able to establish customer deposit

deadlines similar to those of Reserve

Banks. Further, the Reserve Banks and

PSOs will have the same ability to

charge each other for the processing and

delivery of ACH transactions to RDFIs

that they serve. Moreover, depository

institutions and other intermediaries

might benefit from lower ACH

transaction fees that could result from a

more competitive market for the

provision of ACH operator services.

Thus, the Board does not anticipate any

adverse effects on competition resulting

from this proposal.

IV. Conclusion

The Board has decided on the

following modifications to the Reserve

Banks’ deposit deadlines and price

structure for interoperator transactions

that the Reserve Banks exchange with

PSOs.

• First, the Board has decided that the

Reserve Banks should work

collaboratively with ACH operators to

establish interoperator deposit

deadlines by which the Reserve Banks

and the PSOs would exchange

interoperator transactions. The PSOs

would continue to be free to establish

other deadlines by which they would

exchange interoperator transactions

among themselves. The interoperator

deposit deadlines will be implemented

no later than June 2001.

• Second, the Board has approved a

new approach to pricing interoperator

transactions that PSOs send to RDFIs on

the Reserve Banks’ ACH network.

—The Reserve Banks will charge

depository institutions that send and

receive all their transactions through

PSOs a monthly settlement fee of $20

per routing number, rather than the

monthly account servicing fee

(currently set at $25), to settle

interoperator transactions processed

by the Reserve Banks.

—The Reserve Banks will initiate

discussions with the PSOs to

negotiate the structure and level of

fees that will be charged by the

Reserve Banks as well as those fees

that the Reserve Banks will pay the

PSOs.

—The Reserve Banks will charge ACH

operators half the published

electronic connection fee to reflect the

use of the connection by both ACH

operators and the Reserve Banks to

send each other interoperator

transactions.

The new prices for interoperator

transactions will be implemented by the

Reserve Banks no later than September

2001.

• Third, the Board has decided that

the Reserve Banks’ deadline and price

structure modifications be limited to

any intermediary that is defined as an

operator under NACHA rules.

The specific implementation date for

each of the modifications outlined

above will be announced well in

advance of the effective dates.

By order of the Board of Governors of the

Federal Reserve System, October 30, 2000.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 00–28228 Filed 11–2–00; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM

Sunshine Act Meeting

AGENCY HOLDING THE MEETING: Board of

Governors of the Federal Reserve

System.

TIME AND DATE: 10 a.m., Wednesday,

November 8, 2000.

PLACE: Marriner S. Eccles Federal

Reserve Board Building, C Street

entrance between 20th and 21st Streets,

NW., Washington, DC 20551.

STATUS: Open.

MATTERS TO BE CONSIDERED: 

Summary Agenda: Because of its

routine nature, no discussion of the

following item is anticipated. The

matter will be voted on without

discussion unless a member of the

Board requests that the item be

moved to the discussion agenda.

1. Proposed 2001 Private Sector

Adjustment Factor.

Discussion Agenda:

2. Proposed 2001 fee schedules for

priced services.

3. Any items carried forward from a

previously announced meeting.

Note: This meeting will be recorded for the

benefit of those unable to attend. Cassettes