Feature of Hybrid System
“Hybrid” is a word which means a thing made by combining two different elements. In the payment system area, the “Hybrid system” means a combination of the advantages of the DTNS and RTGS system. To be more precise, this system combines the liquidity-savings features of the DTNS system with the immediate finality offered by the RTGS system in order to improve the risk-efficiency trade-off.
The Hybrid system is a logical extension of the DTNS system, where the final settlement takes place only once at the end of the day. The characteristic of the Hybrid system is derived from the fact that the net settlements are made at frequent intervals or continuously. And the net settlements become final at the time of frequent settlements. These frequent net settlements succeeded in combining the liquidity-saving features and immediate finality.
The DTNS system has a disadvantage that the transfer of funds become final only at the end of the day, even though it has an advantage that settlement can be made with small liquidity only for the net position. With the frequent net settlement, the Hybrid system realizes the merit of the RTGS system, that is early finality and free from systemic risk. At the same time, being a net settlement system, the Hybrid system still keeps the merit of the DTNS system, i.e. the settlement capability with small liquidity. The combination of the merits of the two systems is achieved by this means (see Figure 1).
Figure 1. Characteristics of hybrid system
That is the reason why this system is called “Hybrid system.” This system is also sometimes referred to as “Continuous Net Settlement” (CNS) system, compared to the DTNS system.