was formulated to upgrade the existing south african payment system to comply with world - best standards. in may 1994, a strategy - formulation team, consisting of representatives of the reserve bank and the banking community, was established. a collaborative consensus building approach was adopted. the reserve bank acted as facilitator, and it took the task force approximately 14 months to produce a first draft of a proposed strategy for the upgrading of the nps. this document was intensely discussed amongst the many stakeholders before it was finally presented to the south african council of banks ( cosab ), for approval. the document, entitled the south african national payment system : framework and strategy, which has become known as the blue book, is widely recognised as a product of the south african banking industry and its recommendations are accepted as the basis for the official strategy for the reform of the payment system. the national payment system framework and strategy identified the lack of a sophisticated electronic settlement process as a major shortcoming in the south african payment system. to this end a strategy was formulated to introduce an online central bank settlement system that would enable banks to effect interbank fund transfers electronically and in real time, when required. 2. development of a new electronic interbank settlement system the project to implement a new electronic interbank settlement system was identified as the cornerstone for the introduction of a new national payment - processing infrastructure. the south african multiple option settlement ( samos ) system, introduced on 9 march 1998, was developed over a period of two years as a collaborative venture between the reserve bank, private banking institutions, and the technology suppliers. the system ushered in a new era in electronic payment and settlement in south africa and will have a major impact on the future development of the national payment system. furthermore, the new system has already enabled the reserve bank to introduce new operational procedures for the execution of monetary policy. under these new arrangements, banks now participate in a daily tendering system, based on repurchase agreements ( repos ), to obtain funds from or repay funds to the reserve bank. to this end, the settlement system became a convenient vehicle to establish market liquidity needs and to facilitate payment flows, resulting from repo transactions, between the reserve bank and the banks. 2. 1 features of the new settlement system the introduction of the new interbank settlement system represents a major reengineering of the way in which banks exchange value amongst themselves. it provides participating banks with a range of additional functions and business opportunities, including : •

online real - time link between participating banks all banks participating in the new system are linked to an online real - time network provided by the reserve bank. these banks are able to link to the reserve bank service either directly or via swift, the highly secure international funds transfer mechanism. the system enables banks to exchange payment messages with the reserve bank and, through the reserve bank, between themselves. • secure high value fund transfers between participating banks the samos system processes all fund transfer messages received by the reserve bank. samos will eventually enable banks to effect their payments in real time through a fully auditable and robust system. the system will provide a highly secure vehicle for interbank payment flows and ensure the authenticity and non - repudiation of all transactions. all fund transfers will be final and irrevocable and processed successfully by the system. this will be accomplished by effecting payment transactions directly on the settlement accounts of banks held in the reserve bank. • settlement risk reduced by prefunding the risk of settlement failure by any individual participating bank is avoided through application of the principle of prefunding. a request to the system to transfer funds will therefore be carried out only if the bank issuing the fund transfer instruction has sufficient funds in its settlement account ; otherwise, the instruction will be rejected. this implies that banks cannot build up exposures to one another within the system. all funds transferred are irrevocable, and the underlying transactions can thus be finalised during the course of the business day, as and when the bank and the customer require. • collateral managed dynamically the system operates on the principle of full collateralisation of all intraday loans. banks can reserve financial instruments to be used as collateral should they require additional funding during the day. these instruments have to be in electronic form, that is immobilised at either the central depository ( cd ) or in the financial instrument register ( fir ) of the reserve bank. should a bank not have sufficient funds in its settlement account to carry out a fund - transfer request, the system will automatically determine whether the bank has any financial instruments available to be pledged as collateral for a reserve bank loan. if this is the case, the system will automatically raise a loan of the required amount against this collateral and transfer the funds necessary to process the fund - transfer instruction from the bank ’ s loan account ( or marginal lending facility ) into its settlement account. the samos system will now be able to effect the transfer of funds to the receiving bank