Net Send Limits in the Lynx Payment System: Usage and Implications

The net send limit (NSL) tool allows financial institutions in the Lynx payment system to control their intraday payment outflow levels. While other liquidity management tools and strategies in Lynx have been studied extensively, no prior research has been conducted on how system participants use NSLs. We analyze data on Lynx NSLs, payments and settlement times and find that participants adopt a “set it and forget it” approach to scheduling NSLs. As well, participants have distinct intraday “loosening” and “tightening” behaviours with different timing and impacts on payment delays. We discuss two potential reasons for this behaviour: signalling to counterparties and rational inattention.