Back Matter

Back Matter

Author(s):
Omotunde Johnson, Jean-Marc Destresse, Nicholas Roberts, Mark Swinburne, Tonny Lybek, and Richard Abrams
Published Date:
March 1998
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    Appendix Varieties of Large-Value Transfer Systems
    Appendix
    Table A1.Large-Value Transfer Systems in Different Countries: Summary of Appendix Table Contents
    Description
    I. General Organization
    1. Name of the system(Scheduled date if the system not yet operational)
    2. Owner/operator/regulatorEach function can be performed by the central bank, a commercial bank, or a payment association
    3. Governing bodyChairman, committee
    4. ParticipantsNumber of participants (direct and indirect), tiering arrangements, banks or nonbanks
    5. Membership rulesOpen or restricted; reassessments
    6. Degree of centralizationNumber of accounts per bank, number of processing sites
    7. Limitations on valueExclusively large value, or without limitations on size
    8. Type of settlementCan be gross (real time or not), net (bilateral or multilateral), or a combination of net and gross
    9. Recovery of operating costsRecovery of full or variable costs, no or partial recovery; based on the volume or the value of transactions, the timing of transactions
    10. Legal and/or contractual frameworkLaw on payments, central bank regulation or central bank statutes, contractual agreement between the users and the central bank
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsDebit/credit, paper-based/automated, standards, types of information required to process a payment
    2. Number and value of transactions
    3. Timetable of operationsDescription in broad lines of the different steps of the cycle, operating hours
    4. Queuing mechanismsFIFO (first in, first out), possibility of canceling the payments, of changing sequences in queues, optimization routines
    5. Availability and pricing of intraday liquidityUse of reserve balances, market for intraday funds, overdrafts on the books of the settlement agent (collateralized or not), repurchase agreements, interest rates
    6. Overnight creditMoney market, central bank discount window, reserve averaging
    7. Availability of information to participantsCircuit (“Y”, “L”, “V”, “T”) and nature of information made available to participants on incoming and outgoing payments, pending queues, balances on accounts with the central bank
    8. Time of settlement finalityReal time, end of day, next day
    9. Operational connections with other domestic systemsRetail, securities or foreign systems (large-value funds transfer system, LVTS)
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)Bilateral or multilateral
    2. Use of collateral
    3. Loss-sharing agreements
    4. Unwinding clauses
    5. ReliabilityBackup and contingency plans
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemHistorical series on delays in cutoffs, average delay for processing a payment, peaks in the volume of payments, system capacity
    2. Projects under way and evolutionRisk reduction program under way, evolution of net to gross
    Table A2.Australia
    System 1System 2
    I. General Organization
    1. Name of systemBank Interchange and Transfer System (BITS); started November 1987Financial Transactions Recording and Clearing System (FINTRACS); started September 1984
    2. Owner/operator/regulatorOwned, operated, and regulated by five banksAustraclear Ltd., an unlisted public company, owned, operated and regulated by its shareholders, which include banks and nonbank financial intermediaries (NBFIs) but not the Reserve Bank of Australia (RBA)
    3. Governing bodyBITS Management Committee, drawn from the member banksBoard of Directors, drawn from Austraclear’s shareholders
    4. ParticipantsFive privately owned banks are members. Other banks may join as members or participants; NBFIs may only join as participants (no other banks or NBFIs have chosen to join BITS in any capacity)Membership includes banks, NBFIs, and a range of large corporations; in 1994 there were 216 full members, 124 associate members, and 269 trust members
    5. Membership rulesOpen, but membership must have a banking authority and an exchange settlement account (ESA); they must also develop their own interface softwareOpen, but only full members may introduce securities to the system
    6. Degree of centralizationEFT, operates on a decentralized basis with each member bank possessing its own BITS processor and Gateway; one account per bankEFT, operates with a central computer site in Sydney and a star-type network linking all interstate capitals to the central site; all members are required to have a securities account, which may be segregated into a number of subaccounts; only full members are required to have a cash account
    7. Limitations on valueMost transactions are large value, but this is not a ruleMost transactions are large value, but this is not a rule
    8. Type of settlementBilateral net clearing daily; multilateral net settlement at 9.00 a.m. the following morningMultilateral net clearing daily; multilateral net settlement at 9:00 a.m. the following morning
    9. Recovery of operating costsFull recovery of variable costs based on transaction volumes; no interchange feesFull recovery of variable costs through membership and transaction based fees
    10. Legal and/or contractual frameworkContractual agreement between membersContractual agreement between members
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic credit transfersElectronic payment orders, which require matching and confirmation by both parties; Austraclear was developed as an electronic registry and transfer system
    2. Number and value of transactionsIn 1995 there were 1,132,829 payment instructions valued at $A 5.6 trillionNo publicly available data, but daily turnover is estimated to exceed $A 25 billion ($A 6.3 trillion per annum)
    3. Timetable of operationsBITS operates from 9:15 a.m. until 4:30 p.m.; settlement across ESAs is delayed until 9:00 a.m. the following day; bilateral net positions must be advised to the RBA by 4:00 a.m. on the morning following clearing, with multilateral net positions finally settled across ESAs at 9:00 a.m.Austraclear operates from 9:15 a.m. until 4:30 p.m. for all members, and up until 5:15 p.m. for banks only; settlement across ESAs is delayed until 9:00 a.m. the following day; multilateral net positions are advised to the RBA by 6:00 p.m. on the day of clearing
    4. Queuing mechanismsAll payments are irrevocable once made and deliver immediate clear funds to bank customers; there are no queuing mechanisms, but payments must be processed on a FIFO basisAll payments are conditional until confirmed by banks at the end of the day (around 5:30 p.m.), when interbank obligations are deemed to be irrevocable; prior to that, customer transactions can be rejected, and an unwind would occur
    5. Availability and pricing of intraday liquidityNot applicable as there are no interbank limits in BITSNot applicable; there are no interbank limits in Austraclear
    6. Overnight creditThrough interbank money marketThrough interbank money market
    7. Availability of information to participantsBITS Gateways log all incoming and outgoing payments; all payments are processed on a strict FIFO basis; member banks may make inquiries using proprietary software linked to their BITS GatewayThe FINTRACS system records and tracks all securities settlements, cash transfers, cash account balances, etc.; Austraclear members may make inquiries using their FINTRACS terminals
    8. Time of settlement finalityFunds transfers are irrevocable, but next-day settlement across ESAsAll payments are conditional until confirmed by banks at the end of the day; final settlement across ESAs is on a next-day basis; client accounts with sponsoring banks are updated at the close of business
    9. Operational connections with other domestic systemsUsed to settle both customer-related and interbank transactions; all BITS banks have developed interfaces between their proprietary systems and SWIFT, which allows through-processing of international paymentsIt is the central depository for securities traded in the money market; used for all securities except those of the Common-wealth Government; FINTRACS terminals may also be used to access RITS (System 3); Austraclear also performs the cash settlement for derivatives transactions on the Australian Options Market and the Sydney Futures Exchange
    III. Risk Control Measures
    1. LimitsNoneNone
    2. Use of collateralNoPermitted
    3. Loss-sharing agreementsNoneNone
    4. Unwinding clausesNoYes, to reject a customer’s end-of-day net position (has never been used)
    5. ReliabilityAll banks have backup arrangements should their primary Gateway failComprehensive backup and disaster recovery facilities are in place; Austraclear and the RBA provide each other with mutual backup facilities should either FINTRACS or RITS (System 3) experience difficulties
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot availableNot available
    2. Projects under way and evolutionPlans to shift all BITS payments to the RTGS system when it commences operating in 1997; BITS will then be disbandedAll Austraclear payments will shift from net settlement to real-time gross settlement in 1997; Austraclear is also examining possible introduction of debit caps prior to RTGS

    Implementation will involve restructuring of the three existing electronic high-value transfer systems: BITS, FINTRACS, and RITS. The system core will be RITS-based and will include some of the Austraclear system. RITS/RTGS will also accept payments generated from a SWIFT-based closed-user group that is currently being developed. BITS will be disbanded in favor of the SWIFT payment delivery system.

    System 3
    I. General Organization
    1. Name of systemReserve Bank Information and Transfer System (RITS); started September 1991
    RTGS: RITS/RTGS; proposed in April 1995; plan to implement end 19971
    2. Owner/operator/regulatorRITS: Owned, operated, and regulated by the RBA RTGS: RITS/RTGS central site owned by RBA; daily operations managed by Austraclear RITS/RTGS operations regulated by RBA; SWIFT payment delivery system regulated by SWIFT and APCA
    3. Governing bodyRITS: RBA
    RTGS: Still under discussion
    4. ParticipantsRITS: Membership includes the RBA, all banks, Special Service Providers (SSPs) as well as other significant traders of Commonwealth Government securities; in 1995 there were 124 members representing 194 organizations; banks participate directly, nonbanks must operate through a sponsoring bank
    RTGS: Same as RITS
    5. Membership rulesRITS: Open, but members must be eligible to deal in Commonwealth Government securities and have the banking facilities needed to operate in the system (they must be “sponsored”)
    RTGS: Open to all holders of ESAs (currently all banks and two SSPs); nonbank members must be sponsored by banks in the same way as now for RITS and Austraclear
    6. Degree of centralizationRITS: Operated through Sydney branch of the RBA; members have cash accounts and securities accounts, which can be divided into subaccounts
    RTGS: To be based on the RITS platform; nonbank members will have cash accounts and securities accounts; banks will have one ESA and securities accounts
    7. Limitations on valueRITS: Most transactions are large value, but this is not a rule
    RTGS: Expect primarily large value, but a value figure will not be mandated
    8. Type of settlementRITS: Combined net/gross; multilateral net clearing and settlement for next-day funds; RTGS for ESA funds transfers
    RTGS: Real-time gross
    9. Recovery of operating costsRITS: Full cost recovery; mainly based on transaction volumes, but also includes membership fees, which may be waived for Austraclear members
    RTGS: Full cost recovery; to be recouped from membership fees and transaction-based fees
    10. Legal and/or contractual frameworkRITS: Regulations laid out by the RBA
    RTGS: Combination of RBA regulations and industry-agreed regulations and procedures (with contractual force)
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsRITS: Electronic payment orders, which require matching and confirmation by both parties; RITS was developed as a DVP and registry system for Commonwealth Government securities
    RTGS: Electronic credit transfers, plus DVP settlement for all securities currently settled in RITS and Austraclear
    2. Number and value of transactionsRITS: In 1994, there were 43,000 cash transfers valued at $A 1.5 trillion and around 190,000 securities transactions valued at $A 2.9 trillion
    RTGS: Initial estimates suggest around 10,000 transactions (encompassing both funds transfers and securities settlements) worth $A 70 billion per day
    3. Timetable of operationsRITS: Operates from 7:00 a.m. until 4:30 p.m.; banks may settle transactions either same day (RTGS) or next day; other members settle next day. All transactions, whether in same-day or next-day funds, are irrevocable
    Settlement for ESA transfers is immediate, providing that banks have sufficient funds; overdrawing of ESAs is not permitted and payments that would do so are rejected
    Settlement across ESAs for next-day funds is delayed until 9:00 a.m. the following morning; multilateral net positions are calculated at the close of business and advised to the RBA National Collator by 6:00 p.m. on the day of clearing
    RTGS: Operating hours will initially be the same as those of RITS, but there may be a demand in the future for longer operating hours to overlap with overseas RTGS systems
    All large-value transactions will be irrevocable and settle on a RTGS basis; the system will also be used for the batch settlement of interbank obligations generated in the low-value clearing systems (initially this will be at 9:00 a.m. the following morning, but there may eventually be a demand for intraday batching and settlement of obligations)
    4. Queuing mechanismsRITS: All payments are irrevocable once made, whether in same-day or next-day funds; there are no queues, but banks may place overdraft limits on their sponsored clients’ cash accounts, which the system will enforce in real time; no bank can overdraw its ESA (transactions that would do so are rejected)
    RTGS: All payments will be irrevocable once settled. Unsettled payments will be queued pending sufficient funds. Banks may prioritize these unsettled payments. All payments will be tested before the queue manager returns to the start of the queue. All participants will operate within limits—a cash account limit for nonbanks and zero-overdrafts rule for ESA holders (i.e., banks and SSPs)
    5. Availability and pricing of intraday liquidityRITS: Not applicable as the interbank limits in RITS (which are self-determined) are large enough not to cause banks liquidity difficulties
    RTGS: RBA will make intraday repos against Commonwealth Government securities, but will encourage the development of an interbank market for ESA funds. Initially, the RBA will not levy an intraday interest charge for the repos but reserves the right to do so should an alternative intraday market develop. Banks may use government securities held to meet prudential requirements, but must meet the required level at end of day
    6. Overnight creditRITS: Through interbank money market
    RTGS: Through interbank money market; the RBA will heavily penalize any bank that fails to reverse a repo by the end of the day
    7. Availability of information to participantsRITS: Records and tracks all securities settlements, cash transfers, including customers’ cash account balances and banks’ ESA balances in relation to set limits; RITS members may make inquiries using their RITS terminals
    RTGS: All information currently available to the members of RITS and Austraclear, plus information on the number, value, and status of queued transactions; inquiries may be made from RITS or FINTRACS terminals as well as by using SWIFT’S FIN service
    8. Time of settlement finalityRITS: All funds transfers are irrevocable; banks may settle in either same-day funds (RTGS) or next-day funds; all other members have next-day settlement; client accounts with sponsoring banks are updated at the close of business
    RTGS: Real time
    9. Operational connections with other domestic systemsRITS: Is the central depository for Commonwealth Government securities (CGS); terminals that access RITS may also be used to access Austraclear; RITS is also used to settle the interbank obligations arising out of equities clearing on the Australian Stock Exchange
    RTGS: To be built on the RITS platform; FINTRACS to have a direct interface to RITS/RTGS central site for real-time settlement of interbank obligations; SWIFT payment delivery system to connect to RITS/RTGS central site for high-value payments; low-value clearings may settle over the RTGS system in multilateral batches in the future
    III. Risk Control Measures
    1. Limits (bilateral or multilateral)RITS: Banks may place multilateral limits on customer’s cash accounts; the RBA places a limit of zero on banks’ ESAs (no overdrawing permitted)
    RTGS: Banks may place multilateral limits on customers’ cash accounts; the RBA will not allow banks to overdraw their ESAs at any time
    2. Use of collateralRITS: Permitted
    RTGS: Banks have use of their CGS holdings to generate intraday liquidity from the RBA under repurchase agreements; must meet prudential requirements by end of day
    3. Loss-sharing agreementsRITS: Yes
    RTGS: Not needed for an RTGS system (all payments must be prefunded)
    4. Unwinding clausesRITS: No
    RTGS: Not needed
    5. ReliabilityRITS: Comprehensive backup and disaster recovery facilities are in place; the RBA and Austraclear provide each other with mutual backup facilities should either RITS or FINTRACS experience difficulties
    RTGS: Based on the RITS system, which will be upgraded
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemRITS: Not available
    RTGS: Not applicable
    2. Projects under way and evolutionRITS: Plans to shift settlement to RTGS system; RITS will form the basis of the RTGS system
    RTGS: Aim to fully implement and go live by end-1997

    Implementation will involve restructuring of the three existing electronic high-value transfer systems: BITS, FINTRACS, and RITS. The system core will be RITS-based and will include some of the Austraclear system. RITS/RTGS will also accept payments generated from a SWIFT-based closed-user group that is currently being developed. BITS will be disbanded in favor of the SWIFT payment delivery system.

    Table A3.Canada
    System
    I. General Organization
    1. Name of the systemLarge-value transfer system (LVTS) is the present name; scheduled to begin operation mid-1997
    2. Owner/operator/regulatorOwned and operated by the Canadian Payments Association (CPA); oversight by the Bank of Canada
    3. Governing bodyCPA Board of Directors, chaired by Bank of Canada
    4. ParticipantsAbout 20 direct participants are expected; another 60 could be indirect participants; both banks and nonbank deposit-taking institutions are eligible
    5. Membership rulesMembership is restricted to the 150 CPA member institutions
    6. Degree of centralizationOne settlement account per participant is envisaged; there will be one processing site, with backup
    7. Limitations on valueNo restriction of payments by size is planned
    8. Type of settlementMultilateral net settlement; positions calculated in real time, covered by collateral and guarantee by Bank of Canada
    9. Recovery of operating costsRecovery of full costs, using a formula based on the volume of transactions
    10. Legal and/or contractual frameworkCPA by-law on LVTS (to be approved by federal government cabinet); Bank of Canada oversight pursuant to the Clearing and Settlement Act
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsAutomated credit transfers will be in standard SWIFT format
    2. Number and value of transactionsEstimated daily volume—about 20,000; estimated daily value—about Can$50 billion
    3. Timetable of operationsExpected hours 8:00 a.m. to 6:00 p.m. Eastern Time, followed by a presettlement trading interval; settlement by 8:00 p.m.
    4. Queuing mechanismsUse of queues is not clear at present
    5. Availability and pricing of intraday liquidityEach participant will be allowed a (collateralized) net debit position intraday; the maximum multilateral net debt will be a function of bilateral lines it receives, plus its own pledged collateral; there will be no interest associated; additional central bank repo transactions are possible
    6. Overnight creditEach direct participant may borrow overnight from the central bank; there is also an active interbank market
    7. Availability of information to participantsThe planned circuit is “Y”; incoming payments are fully described prior to passing the cap tests; direct participants will be able to read their LVTS positions in real time
    8. Time of settlement finalityUsually real time; may be end of day for an institution with operational problems
    9. Operational connections with other domestic systemsThe settlement procedures for the debt-clearing service (DCS) and the foreign-exchange netting mechanism (Multinet) are expected to employ the LVTS
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)Both: participants declare a maximum bilateral net credit position vis-à-vis each other; each participant has a multilateral net debit position cap
    2. Use of collateralParticipants pledge a fraction of the largest line they receive; they may augment this debit cap by pledging more collateral; they also pledge the full amount of overnight debit positions
    3. Loss-sharing agreementsThe debit position of a defaulting participant is shared in proportion to the bilateral lines extended to it
    4. Unwinding clausesThere is no unwinding of LVTS messages
    5. ReliabilityThe LVTS will rely on the backup provided by the SWIFT network; in addition, there is backup for the central computer
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNone available yet
    2. Projects under way and evolutionThe caps in LVTS will be introduced gradually over several months; there is no plan to move to gross settlement
    Table A4.China
    System 1System 2
    I. General Organization
    1. Name of the systemElectronic Interbranch System (EIS); started in 1986 and operational since 1991High-value payment system (HVPS); will be a subsystem of the planned China National Advanced Payment System (CNAPS); implementation of CNAPS will commence late in 1996 and is planned to be fully implemented in 2001
    2. Owner/operator/regulatorOwned by China Finance Computer Company, a fully owned subsidiary of the Peoples Bank of China (PBC), and managed by National Clearing Center, a division of the PBCOwned and operated by the PBC
    3. Governing bodyPBCPBC
    4. ParticipantsDirect participation of 416 PBC branches (300 active locations)Direct through all 2,400 PBC branches; 80,000–100,000 commercial bank branches
    5. Membership rulesPBC branches only; financial institutions (FIs) serviced by local PBC branchesUniversal access by all FIs (direct for FIs with PBC accounts, indirect for all others); rules set by PBC
    6. Degree of centralizationNone; all Fl branches have accounts with local PBC branchPossibly integrated account structure by branch
    7. Limitations on valueExclusively LVTS; Y 100,000 minimumLVTS
    8. Type of settlementGross; not real timeGross; real time
    9. Recovery of operating costsNoneEventually, pricing for full cost recovery; an initial subsidy is possible
    10. Legal and/or contractual frameworkNo governing law, only a few regulationsTo be coordinated with evolving laws, with operating rules set by PBC
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic payment orders (credits)Electronic credit transfers
    2. Number and value of transactions30,000 a dayInitially HVPS will process up to 350,000 transactions a day; peak hour capacity will be approximately 70,000; full implementation will result in the capability to process 1 million transactions a day with a peak-hour capacity of 200,000 transactions
    3. Timetable of operations9:00 a.m.–4:00 p.m.; not all payments processed; (depends on PBC branches’ ability)Initially HVPS will operate between 8:00 a.m. and 4:30 p.m.; a special window to permit bank branches to fund their settlement accounts will operate from 4:30 p.m. through 6:00 p.m. daily
    4. Queuing mechanismsManual; FIFOElectronic FIFO; banks can monitor their queues and cancel their first order in the queue if it is creating a bottleneck
    5. Availability and pricing of intraday liquidityLiquidity is exchanged within the same Fl, between different FIs, or it can be brokered by a PBC branchNormally not
    6. Overnight creditSome arranged with surplus FIs by PBC branchSettlement window to allow branches to borrow intrabank, in the interbank money market, and from PBC at penalty rate
    7. Availability of information to participantsMinimal, depending on local PBC branch’s facilities—some weekly, monthly account balance reportsFull capabilities, including electronic queuing, overdraft monitoring, real-time account balances, etc.
    8. Time of settlement finalityAt end of day processed; some paper flow cycles take two to ten daysReal time, with queues
    9. Operational connections with other domestic systemsManual link with National Electronic Trading System for securities settlementInternational network standard protocols will permit full connectivity domestically and internationally
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)None; prefunding of accountsNot yet determined
    2. Use of collateralNoneNot yet determined
    3. Loss-sharing agreementsNoneNot applicable
    4. Unwinding clausesNoneNot applicable
    5. ReliabilityLimited to local PBC branch facilitiesFull redundancy
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicableFull, strong, and detailed standards set
    2. Projects under way and evolutionCNAPS, HVPSPhased implementation scheduled
    Table A5.Denmark
    System
    I. General Organization
    1. Name of the systemDanmarks Nationalbank’s Inquiry and Transfer System (DNITS) is a screen-based on-line RTGS system that was established in 1981; large-value checks are cleared via the retail clearing system; security and derivative transactions are netted in the VP-clearing (Danish Securities Center); both the retail and VP-clearing are settled the next day at 9:00 a.m. in the books of the Nationalbank
    2. Owner/operator/regulatorDNITS is owned by Danmarks Nationalbank; DNITS is operated by BEC, the Nationalbank’s computing center (one of six computing centers that is owned by several smaller banks, excluding the Nationalbank); DNITS is regulated by Danmarks Nationalbank, while financial institutions are supervised by the Danish Financial Supervisory Authority, which is under the control of the Ministry of Business and Industry
    3. Governing bodyNo specific body; DNITS is managed by the Nationalbank
    4. ParticipantsAll credit institutions and investment companies with an account at the Nationalbank can participate; credit institutions and investment companies are licensed by the Danish Financial Supervisory Authority; the Nationalbank accepts remote access to a current account provided that the account-holder is domiciled in another member of the European Union (EU) or the European Economic Area (EEA); the government holds several accounts with the Nationalbank; the DNITS is a one-tier system with no indirect participants; as of end-August 1995, 96 accountholders participated (85 were credit institutions, of which six were branches of institutions from other EU-countries; the remaining 11 accounts were held by six investment companies and five public agencies); there were no remote participants from other countries in the system
    5. Membership rulesParticipants have to sign an agreement with Danmarks Nationalbank
    6. Degree of centralizationCredit institutions have one account at the Nationalbank; a participant may have several terminals using a direct line via their own computer center to BEC
    7. Limitations on valueThere is no limit on size of transaction, but the system is mainly for large interbank transactions
    8. Type of settlementRTGS
    9. Recovery of operating costsThe initial development costs and costs of later improvements have all been paid by the Nationalbank and have not been recovered from the participants; the running costs are covered by different fees, which are all paid by the participants directly to BEC; although the Nationalbank is not involved in the charging of fees, the BEC consults the Nationalbank before fees are changed; the main fees are an entry fee of DKr 1,600, a quarterly fee per account of DKr 1,200, a quarterly fee per user of DKr 150, and a fee per transaction of approximately DKr 1; participants have to pay themselves for the required hardware and the links to the BEC
    10. Legal and/or contractual frameworkThere is no legislation governing this area; however, guidelines for using the DNITS is described in “Handbook for DN Inquiry and Transfer System”; according to the Nationalbank of Denmark Act from 1936, the overall objectives are to maintain a safe and secure currency and to facilitate and regulate the circulation of money and the extension of credit
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic credit transfers; only the absolutely necessary information for the bookkeeping at the Nationalbank is entered into the DNITS; all other information (the retail payment message) has to be exchanged bilaterally outside the system; this is usually done via SWIFT or by telephone
    2. Number and value of transactionsAverage daily transactions
    199219931995
    In billions of kroner:64.698.075.5
    In percent of GNP:7.611.17.8
    Average number of daily
    transactions:1,4071,4751,396
    3. Timetable of operationsFor transactions, 9:00 a.m.-3:30 p.m., for inquiries, 8:00 a.m.-6:00 p.m.
    4. Queuing mechanismsNo queuing; transactions are rejected if balance is below allowed net debit position; no cancellation (a reverse transaction neutralizes an error); duration of the end-to-end process does not normally exceed one second
    5. Availability and pricing of intraday liquidityDanmarks Nationalbank has, until October 1995, accepted uncollateralized intraday credit up to 100 percent of a participating credit institution’s own funds; it will be reduced to 40 percent by June 30, 1997, 20 percent by June 30, 1998, and thereafter all intraday credit has to be fully collateralized; drawings exceeding limits must be collateralized
    6. Overnight creditSince April 1992 there has been no overnight facility; the Nationalbank provides liquidity via repos, mainly against government bonds and Treasury bills (three-, six-, and nine-month maturity), with a maturity of two weeks, that are auctioned each week; there are no reserve requirements; banks can deposit excess liquidity on their current account at the Nationalbank; current account deposits within certain limits are remunerated; in case of a negative balance at 3:30 p.m., the participants are contacted by the Nationalbank and are requested to cover their overdrafts immediately and have to pay an administration fee of 0.02 percent of the amount (minimum DKr 1,000)
    7. Availability of information to participants“Y” design; the center of the transaction is BEC, not Danmarks Nationalbank; other information than for the bookkeeping—for instance, about the retail payment messages that have caused the large-value interbank transaction—has to be exchanged bilaterally outside the system; this is usually done via SWIFT or by telephone
    8. Time of settlement finalityReal time
    9. Operational connections with other domestic systemsThe netted amounts of the retail clearing (checks, direct debit payments, and Dankort) are compiled once a day and booked on the banks’ accounts with the Nationalbank; the clearing of securities (VP-clearing) is also settled next morning at 9:00 a.m. on the books of the Nationalbank; DNITS will be connected to the Trans-European Automated Real-Time Gross Settlement Express Transfer System (TARGET)
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)The Nationalbank is currently reducing the debit limit from 100 percent of a participating bank’s own funds (from October 1995) to 40 percent (until June 30, 1997); 20 percent (until June 30, 1998); and thereafter to zero intraday credit without collateral
    2. Use of collateralCollateral will increasingly be required for intraday credit (see above); overnight credit is provided via repos and is already fully collateralized; collateral consists primarily of the Nationalbank’s certificate of deposits (CDs), treasury bills, government bonds, and mortgage credit bonds, with a haircut of 1 percent for CDs and of 5 percent for the other types of securities
    3. Loss-sharing agreementsNot applicable
    4. Unwinding clausesNot applicable
    5. ReliabilityBackup and contingency plans exist
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicable
    2. Projects under way and evolutionThe Nationalbank has planned a modernization of the DNITS during 1996. The Nationalbank will take into account proposals from the users
    Table A6.France
    System
    I. General Organization
    1. Name of the systemTransfer Banque de France (TBF); opened April 1997
    2. Owner/operator/regulatorBank of France (BdF) for the three functions; payments sent by the banks through a technical platform, the Centrale de Règlements Interbancaire (CRI), a joint-stock company whose shareholders are the BdF and 11 commercial banks
    3. Governing bodyBdF
    4. ParticipantsAround 200 direct participants; no indirect participants, only credit institutions and institutions holding securities accounts
    5. Membership rulesOpen to credit institutions and institutions holding securities accounts with an account with the BdF
    6. Degree of centralizationOne account per bank; possibility of subaccounts but only one pending queue per bank
    7. Limitations on valueSuggested minimum threshold: F 5 million (noncompulsory)
    8. Type of settlementRTGS
    9. Recovery of operating costsFull cost recovery, based on volume plus entry fee
    10. Legal and/or contractual framework1984 Banking law, 1993 Central Bank statutes, and contracts between BdF and banks
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsAutomated credit transfers; International Standardization Organization (ISO) SWIFT standards
    2. Number and value of transactionsEstimated at 15,000 transactions for F 1,200 billion
    3. Timetable of operations7:30 a.m. to 6:30 p.m.
    4. Queuing mechanismsDuring the day: periodic optimization routines (FIFO basis), which are initiated when the settlement of other domestic systems across TBF occurs; end of day: before the cutoff, global optimization routine; no cancellation possibility
    5. Availability and pricing of intraday liquidityIntraday repos granted by the BdF, free of interest; no overdraft on the books of the BdF
    6. Overnight creditUsual instruments of monetary policy (money market operations)
    7. Availability of information for participants“Y” design; participants to receive information on any change in the status of a payment sent or received (total transparency of the pending queues)
    8. Time of settlement finalityReal-time finality
    9. Operational connections with other domestic systemsAll domestic systems to be settled through TBF; TBF will be interlinked with other European Union RTGS systems within TARGET
    III. Risk Control Measures
    1. Limits (bilateral or multilateral)No limits
    2. Use of collateralYes, through repos
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityA 99.98 percent reliability level is required
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicable
    2. Projects under way and evolutionThe system was under construction for planned opening April 1997
    Table A7.Germany
    System 1System 2
    I. General Organization
    1. Name of the system(1) Elektronische Abrechnung (electronic clearing with file transfer, EAF), introduced March 23, 1990;
    (2) EAF replaced by EAF-2, introduced March 8, 1996
    (1) Eiliger Zahlungsverkehr (express electronic credit transfer system, EIL-ZV); introduced 1987;
    (2) EIL-System, introduced July 26, 1996
    2. Owner/operator/regulatorOwner: Bundesbank; operator: Land Central Bank of Hessen at Frankfurt (LCBH); regulator: BundesbankOwner: Bundesbank; operator: Bundesbank, Land Central Bank (LCB) branches; regulator: Bundesbank
    3. Governing bodyCentral Bank CouncilCentral Bank Council
    4. Participants64 banks (1996); membership is open to credit institutions located in Frankfurt, and which hold giro accounts with the Bundesbank’s Frankfurt branch5,700 direct participants (banks) in EIL-ZV; 754 participants (143 with diskettes, 611 with electronic data interchange) in the Electronic Counter
    5. Membership rulesMinimum technical requirementsMembership is available to credit institutions with accounts with Bundesbank branches; minimum technical requirements
    6. Degree of centralizationOne account for every member; one central computer in Frankfurt with access in two gatewaysEIL-ZV: one account for every direct participant at 1 77 Bundesbank branches (one computer system (ES 9000) in each branch); EIL-System: two high-reliability-computer centers at Land Central Bank Hessen and LCB NRW
    7. Limitations on valueMinimum amount of DM 50,000 for messages in DTA format (German standard for electronic payments); no value limit for messages in SWIFT formatEIL-ZV: minimum amount of DM 50,000 (for messages in DTA format); no value limits for messages in SWIFT format; EIL-System: no value limit from September 2, 1996
    8. Type of settlementEAF: multilateral net clearing; EAF-2: periodic bilateral offsetting followed by a multilateral net clearing session; allows for intraday finality for most paymentsRTGS
    9. Recovery of operating costsSince July 1, 1991, the Bundesbank has introduced comprehensive fees for its payment services (e.g., DM 0.40 per payment exchange record and participation fee DM 500 per month) to allow full recovery of variable and other costsSince July 1st 1991, the Bundesbank has introduced comprehensive fees for its payment services (e.g., DM 0.30 per express payments, DM 10 per telegram) to allow full recovery of variable other costs
    10. Legal and/or contractual frameworkAgreements between the Bundesbank and participating credit institutions; Bundesbank regulations and technical directivesPayment agreements between the banking associations; Bundesbank regulations and technical directives
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic credit transfers (DTA or SWIFT format)EIL-ZV: electronic credit transfers (DTA or SWIFT format); telegraphic transfers (guaranteed same-day settlement); conversion of paper-based orders; express payments (more than 99 percent settled on a same-day basis, but not guaranteed); EIL-System: electronic credit transfers (DTA or SWIFT format); all payments: same-day settlement; different priorities (P1 -payments are settled real time; P2-payments are settled at intervals of 60 minutes till midnight and at intervals of 30 minutes after noon)
    2. Number and value of transactionsAverage number of payments per day: 70,600 (1995); average total value per day: more than DM 590 billion; in 1995 EAF handled 76.4 percent of the total value of cashless payments via Bundesbank and OB percent of the volumeAverage number of payments per day: 21,800 (1995); average total value per day: more than DM 107.2 billion; in 1995 EI L-ZV handled 1 3.9 percent of the total value of cashless payments via Bundesbank and 2.4 percent of the volume
    3. Timetable of operationsEAF: data files are fed in by the banks at short intervals and sent to the recipients; at 2:30 p.m. the multilateral balances are settled through the giro accounts of the participants; transactions are final at 2:30 p.m. (grace period until 3:30 p.m.);
    EAF-2 two-phase procedure: phase 1 (8:00 a.m. to 1 2:45 p.m.) comprises bilateral offsetting every 20 minutes;3:00p. phase 2 (1:00 p.m. to 2:15 p.m.) includes a net multilateral clearing session for outstanding payments; if necessary, an algorithm selects the payments deemed to be uncovered; participants then have 45 minutes to cover their positions; uncovered payments are revoked
    EIL-ZV:open 8:15 a.m.-2:00 p.m. (for late delivery fee: express payments till 2:30 p.m., giro telegrams till 3:00 p.m.); delivery in intervals via Electronic Counter (20 minutes for giro telegrams, 60 minutes for express payments), latest at 3:30 p.m.
    EIL-System: open 8:00 a.m.-2:00 p.m. (for late delivery fee: telegraphic transfers till 3:00 p.m.); delivery: for telegraphic transfers, real-time processing; for express payments, intervals of 60 minutes up to noon and 30 minutes thereafter
    4. Queuing mechanismsEAF: no queues
    EAF-2 principles of queue transparency: phase 1: FIFO; phase 2: unmatched payments are used to calculate a multilateral balance for each participant; if debit balances cannot be covered by the liquidity on the giro accounts a complex algorithm for sorting out individual payments is used
    EIL-ZV: first-fit principle
    EIL-System (new features planned for 1997): queue transparency; changing sequences in queues
    5. Availability and pricing of intraday liquidityEAF: only limited liquidity needs because of the netting mechanism; net positions at the clearing cutoff time can be met from credit positions on the Bundesbank accounts and Lombard credit facilities
    EAF-2: Intraday liquidity in the system provided by the netting mechanism (bilateral and multilateral); a system of collateralized limits; each participant defines in advance bilateral sender caps amounts (the value of payments it is willing to send in excess of those received from the same counterparty); the sender caps are fully collateralized, and both amounts corresponding to the sender caps are transferred from giro accounts of senders to subaccounts; subaccount balances are assigned (assignment for securing a loan) prior to phase 1 in its giro account; (this assignment will be converted to a straightforward assignment in regard of the bilateral debit position at the end of phase 2)
    EIL-ZV: use of reserve balances; giro overdraft facility; no pricing; EIL-System: gross system, no overdrafts; banks have to fund accounts from the interbank money market
    6. Overnight creditYesEIL-ZV: yes, giro overdraft facility; pricing
    EIL-System: yes
    7. Availability of information to participantsFull information on payment messages“V” design
    8. Time of settlement finalityEAF: end of day; EAF-2: 70 percent of payments will be final before 10:30 a.m.; 99 percent of payments should be settled after the first stage of the multilateral clearing sessionReal time
    9. Operational connections with other domestic systemsThere are dependencies between EIL-ZV and EAF because settlement takes place on the same account of a bankThere are dependencies between EIL-ZV and EAF because settlement takes place on the same account of a bank
    III. Risk Control Measures
    1. Limits (bilateral or multilateral)EAF: no; EAF-2: fully collateralized bilateral maximum sender capsFor technical reason less than DM 1 billion per payment
    2. Use of collateralYesYes
    3. Loss-sharing agreementsNoNo
    4. Unwinding clausesEAF: yes; EAF-2: no
    5. ReliabilityBackup for data transfer: magnetic tapes, cassettes, or diskettes; backup computer centerEIL-ZV: backup for data transfer: magnetic tapes, cassettes, or diskettes; also paper-based
    EIL-System: mutual backup of the two high-availability computer centers; backup for data transfer: magnetic tapes, cassettes, or diskettes
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the system1995: 17.8 million transactions turnover of DM 148 trillion; peak DM 1,100 billion and 90,000 transactions in one dayEIL-ZV: since 1992 Electronic Counter; since November 1995 longer operating hours; EIL-System: estimated 480,000 payments per day maximum
    2. Projects under way and evolutionNarrowing of the gap between gross and net systems balancing the advantages of both systems (fewer risks versus greater liquidity)Narrowing of the gap between gross and net systems balancing the advantages of both systems (fewer risks versus greater liquidity)
    Table A8.India
    System
    I. General Organization
    1. Name of the systemNational Clearing Center (NCC), in operation since 19871
    2. Owner/operator/regulatorReserve Bank of India (RBI)
    3. Governing bodyA committee of NCC members, chaired by the RBI
    4. ParticipantsAbout 40 banks and the RBI
    5. Membership rulesEssentially open for banks, but subject to liberal membership rules laid down by the RBI; direct members must conform to volume and value turnover standards, except for the RBI and nationalized banks, which can be granted direct membership without meeting these criteria
    6. Degree of centralizationFour main clearinghouses;2 each bank has one combined required reserve/settlement account at the RBI
    7. Limitations on valueThe system is paper-based; there is no limit on the size of payments in any clearinghouse, but the four main ones have a separate clearing for large-value items (> Rs 100,000)
    8. Type of settlementMultilateral net
    9. Recovery of operating costsProcessing fees are set to recover long-run costs
    10. Legal and/or contractual frameworkUniform Code of Customs and Practices drafted by NCC membership
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsAbout 99 percent are paper-based, almost all checks; some bulk electronic credit transfers also put through clearinghouse
    2. Number and value of transactionsIn December 1994, the four main clearinghouses handled 32 million checks with a value of Rs 3.2 trillion; first data for 1995 show a decline in volume of 2.69 percent and an increase in value of 11.47 percent
    3. Timetable of operationsLarge-value checks are delivered by 3:00 p.m. and cleared by 6:00 p.m. that day; other checks are delivered by 4:00 p.m. and processed overnight
    4. Queuing mechanismsNo queuing; net position must be met
    5. Availability and pricing of intraday liquidityRequired reserves can be used intraday, but settlement account must be in credit at all times; no other intraday credit is available from the RBI
    6. Overnight creditMainly through money market; reserve balances can be used, but with a heavy penalty; reserve averaging is not permitted
    7. Availability of information to participantsInformation available by phoning RBI or clearinghouses
    8. Time of settlement finalityFor high-value clearing, the customers’ accounts are credited on the same day and the withdrawal authorized the next morning
    9. Operational connections with other domestic systemsNo connections, but DVP system being planned
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)Total presentation by a member is limited to 10 percent of its total demand and time liabilities
    2. Use of collateralNo
    3. Loss-sharing agreementsNone
    4. Unwinding clausesYes, but rarely used
    5. ReliabilityFour major clearinghouses act to back up each other; a full backup system is being installed in Bombay
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicable
    2. Projects under way and evolutionAn electronic clearing system for bulk credit transfers is being developed

    There is not yet an electronic LVTS in India, although one is being considered for early implementation; most large-value transactions are handled by a group of four related check clearinghouses, which operate in Bombay, Calcutta, Delhi, and Madras; these handle about 80 percent of the total volume of all checks processed, and have a separate clearing session for large-value checks. Other large-value clearinghouses were to open in 1996 in Ahmedabad, Bangalore, and Hyderabad.

    There are about 850 clearinghouses for checks in India.

    Table A9.Israel
    System 1System 2
    I. General Organization
    1. Name of the systemBanks’ Clearing House (BCH); operational since October 1952Bank Clearing Center Ltd. (BCC); operational since June 1984
    2. Owner/operator/regulatorOwned, operated, and supervised by the Bank of Israel (Bl) and regulated by Clearing House CommitteeOperated by a corporation owned by the five major banks; regulated by Bl and Clearing House Committee
    3. Governing bodyClearing House Committee appointed by the Governor of Bl; includes five Bl staff (including chairman) and five representatives of commercial banksBoard of Directors appointed by shareholding banks
    4. ParticipantsAll commercial banks with accounts at Bl may participate; non-Israeli banks, which do not have accounts with Bl, are represented by Israeli banks; participation varies by type of system, with between 3 and 18 direct participants and between 20 and 28 indirect (represented) participantsSame as BCH; 12 direct participants and 26 indirect (represented) participants
    5. Membership rulesAll commercial banks in Israel, the West Bank and Gaza Strip, and Jericho may apply for membership; the Bl and the Post Office Bank are also membersSame as BCH
    6. Degree of centralizationOne site for exchange of clearing items (no processing) and settlement summaries; no limits on number of accountsThe automated clearinghouse has one processing site; no limits on number of accounts
    7. Limitations on valueSmall-and large-value, with no limitations on sizeSame as BCH
    8. Type of settlementMultilateral net settlementMultilateral net settlement
    9. Recovery of operating costsAll expenses covered by direct participants in proportion to the number of their participations in the various clearingsFee per transaction; rate varies according to type of transaction
    10. Legal and/or contractual frameworkMembership in the clearinghouse requires compliance with procedures agreed on by the Clearing House Committee; this is considered a contractual frameworkSame as BCH
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsPaper-based debit and credit instruments (mainly checks, MICR encoded standard CMC7) (currency—only NIS, new sheqalim)Electronic payments—preauthorized debits and credits (currency—only NIS)
    2. Number and value of transactionsIn August 1995, 16.1 million checks were cleared, with a value of NIS 49.7 billionBCH: May 1996—16.4 million checks cleared with value of NIS55.4 billion. BCC: June 1996—6.8 million debits—value NIS 5.3 billion; 4.6 million credits—value NIS 16.2 billion
    3. Timetable of operationsBusiness day ends at 3:00 p.m.; timetable may vary, but generally: day 1: 7:00 p.m. clearing of debits and credits; day 1: 8:00 p.m. clearing of checksSubmissions to BCC before noon are processed the same day; the net results are settled in the banks’ accounts with Bl overnight (value—day of processing)
    4. Queuing mechanismsNo queuing mechanismNo queuing mechanism
    5. Availability and pricing of intraday liquiditySince clearings are settled on a daily batch basis, there is no need for intraday liquidity; on rare occasions, unintentional technical overdrafts may occur, in negligible amountsSame as BCH
    6. Overnight creditMoney market: until 3:00 p.m. on day 2, banks may make interbank transfers—value, day 1, to settle their positions with Bl; such interbank transfers are processed electronically on a separate private network; on average, approximately 10 transactions per day totaling NIS 1 billion; Bl has a discount facility until 3:00 p.m. (value—same day); reserves with Bl for monetary purposes are averaged monthlySee BCH
    7. Availability of information to participantsClearing amounts are reconciled overnight and finalized by 10:00 a.m. on day 2; banks are notified of their end-of-day balances with Bl, via SWIFT or e-mail, no later than 7:00 a.m. on day 2Full details of all transactions are available to the banks in electronic format by 8:00–10:00 p.m. on day processed
    8. Time of settlement finalityFinality on day 2, with value from day 1Same as BCH
    9. Operational connections with other domestic systemsSecurities: the Clearinghouse of the Tel-Aviv Stock Exchange (not BCH) settles all transactions on a multilateral net basis, through the banks’ accounts with Bl on the business day following the day of trading (the transfer of the securities is settled at the same time)Some credit card settlements are cleared through BCC as preauthorized debits
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No limitsCustomer limits are defined in advance or authorized specifically by banks
    2. Use of collateralCollateral accepted by Bl for discount facility is mainly foreign currency deposits of banks and a floating charge on traded government bonds and treasury billsSee BCH
    3. Loss-sharing agreementsNoNo
    4. Unwinding clausesUnwinding subject to general lawSame as BCH
    5. ReliabilityNot applicableBackup facilities on separate site
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNonePeaks arising from monthly salary payments occur on the first and last days of the month and on the 8th to the 10th of the month
    2. Projects under way and evolutionNoneThe project, payment instructions with digital signature, is now operational
    Table A10.Italy
    System 1System 2
    I. General Organization
    1. Name of the systemBanca d’ltalia continuous settlement system (BISS); created April 1989Banca d’ltalia Gross Settlement (BI-REL); origin in white paper of May 1994; basic features of the system defined after consultations with the banking system (“Interbank Payments in Italy: Lines of Reform, April 1995”); system expected to be fully operational in the first half of 1997
    2. Owner/operator/regulatorBanca d’ltaliaBanca d’ltalia
    3. Governing bodyBanca d’ltaliaBanca d’ltalia
    4. Participants427 direct participants (October 1995)Participants: all banks holding centralized accounts with the central bank (at present over 800 banks)
    5. Membership rulesOpen to all banks having access to the national interbank network (RNI)Open to all banks having a centralized account with the central bank
    6. Degree of centralizationOne settlement account per bankOne settlement account per bank
    7. Limitations on valueNo limitation on sizeNo limitation on size; BI-REL will handle only large-value payments (these will be distinguished from retail payments on the basis of the operating procedure that will carry them)
    8. Type of settlementRTGSRTGS
    9. Recovery of operating costsPartial recovery of operating costsThe pricing policy of the Banca d’ltalia will be consistent with the decisions which will be made at the EU level to comply with the general principle of full cost recovery
    10. Legal and/or contractual frameworkRegulations, policies, and enforcement of rules are carried out by the Banca d’ltaliaAgreements between the central bank and the commercial banks
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic interbank and intrabank transfersPaper-based and electronic interbank and intrabank transfers
    2. Number and value of transactions1994: 65,000 transactions for Lit 250 trillionEstimated 8 million transactions for Lit 35,500 trillion
    3. Timetable of operations8:00 a.m. to 5:00 p.m.8:00 a.m. to 4:30 p.m.
    4. Queuing mechanismsNo queuing mechanismsThree orders of priority, FIFO inside each priority: high priority—balances from the clearing system and operations of the Banca d’ltalia (repos, standing facilities, operations on behalf of the State Treasury); medium priority—screen-based interbank market deposits; ordinary priority—all other payments (cancellation of payments at the end of the operational day; a procedure is currently under study for the optimization of queues at the system level)
    5. Availability and pricing of intraday liquidityNo intraday liquidity from the central bankLimited supply of intraday liquidity by the Banca d’ltalia through an intraday mobilization of compulsory reserves and daylight overdrafts fully collateralized by securities (government securities, bank bonds listed on regular markets, lira-denominated securities issued by international organizations)
    6. Overnight creditRefinancing by the Banca d’ltalia (through current account advances, fixed-term advances, rediscount operations); mobilization of a percentage of the compulsory reserves held at the central bank through screen-based interbank money marketRefinancing by the Banca d’ltalia (through current account advances, fixed-term advances, rediscount operations); mobilization of a percentage of the compulsory reserves held at the central bank through screen-based interbank money market; penalty rates for the nonreimbursement of intraday liquidity supplied by the Banca d’ltalia are applied to reduce the risk of spillover from intraday to overnight liquidity
    7. Availability of information to participants“V” design; both counterparties to a transaction receive a notification for every payment they settle, including the balances of their account with the central bank“V” design; both counterparties to a transaction receive a notification for every payment they settle, including the balances of their account with the central bank; no automatic transmission of messages for queued payments, except for those entered by the Banca d’ltalia; bank’s inquiries will provide detailed information on outgoing payments; only limited information (total amount and number of payments) will be available for incoming payments
    8. Time of settlement finalityReal-time finalityReal-time finality
    9. Operational connections with other domestic systemsNot applicableClearing of final multilateral balances (including the balances of retail payments and securities transactions) will be settled through the BI-REL system
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)NoNo
    2. Use of collateralNoYes, for backing daylight overdrafts
    3. Loss-sharing agreementsNoNo
    4. Unwinding clausesNoNo
    5. ReliabilityRecovery procedures designed to ensure continuous functioning of the systemRecovery procedures designed to ensure continuous functioning of the system
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicableNone
    2. Projects under way and evolutionNoneBI-REL expected to be operational in the first half of 1997.
    Table A11.Japan
    System
    I. General Organization
    1. Name of the systemBank of Japan Financial Network System (BOJ-NET), operational since October 1988
    2. Owner/operator/regulatorThe Bank of Japan (BOJ)
    3. Governing bodyBOJ
    4. ParticipantsAround 400 participants, including banks, securities firms, etc.
    5. Membership rulesLimited to institutions with an account with the BOJ
    6. Degree of centralizationMultiple accounts per bank; two processing sites
    7. Limitations on valueNo limitations except for third-party transfers the minimum value for which is ¥300 million
    8. Type of settlementDesignated-time net/real-time gross
    9. Recovery of operating costsTransaction charges variable with the transaction volume, and monthly fixed charges depending on the number and type of communications lines used; institutions benefiting from on-line processing services must pay the relevant charges
    10. Legal and/or contractual frameworkBank of Japan Law of 1942; contractual agreements between the users and the central bank
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsAutomated credit transfers; in-house (within the same financial institution) debit transfers are possible
    2. Number and value of transactionsAround 15,500 transactions for ¥164 trillion per day
    3. Timetable of operations9:00 a.m.–5:00 p.m., for same-day value; funds can be settled on a designated-time basis or on a real-time basis, depending on the choice made by the originating bank; designated net settlement times: 9:00 a.m., 1:00 p.m., 3:00 p.m., 5:00 p.m.; funds transfers settled on a designated-time basis can be revoked before they are executed; funds settled on a real-time basis are instantaneously final
    4. Queuing mechanismsNot applicable
    5. Availability and pricing of intraday liquidityIntraday money markets (from 9:00 a.m. to 1:00 p.m.; from 1:00 to 3:00 p.m.; and from 3:00 to 5:00 p.m.); no overdrafts
    6. Overnight creditOvernight money market (from 1:00 p.m., 3:00 p.m., or 5:00 p.m. to 9:00 a.m. or 1:00 p.m. the next day)
    7. Availability of information to participants“V” design (for the RTGS mode)
    8. Time of settlement finality9:00 a.m, 1:00 p.m., 3:00 p.m., 5:00 p.m., for funds settled on a designated-time basis; real time for the others
    9. Operational connections with other domestic systemsTransactions handled by privately managed interbank payment systems, such as Zengin System (Domestic Funds Transfer System), Foreign Exchange Yen Clearing System, Bill and Check Clearing Systems, and Tokyo International Financial Futures Exchange, are settled through BOJ-NET
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No
    2. Use of collateralNo
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityContingency plans in place and a remote backup facility established
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicable
    2. Projects under way and evolutionNone
    Table A12.Korea
    System
    I. General Organization
    1. Name of the systemThe Bank of Korea Financial Wire Network (BoK-Wire) began operating in December 1994; it is a large-value RTCS
    2. Owner/operator/regulatorThe Bank of Korea (BoK) owns and operates the system; BoK is also the regulatory and supervisory agency for the payments system in general
    3. Governing bodyMonetary Board of the BoK, through the Governor of BoK; an internal BoK-Wire Operating Committee (chaired by BoK Deputy Governor) decides various operational matters; there is also a Council of Institutions Participating in BoK-Wire, which is advisory
    4. ParticipantsAt end-1994 there were 138 participants—all direct—of which 115 were actually operational at that time; by end-July 1996 this had risen to 149 participants, all operational; participants include banks; finance, securities, and investment and trust companies; merchant banks; and insurance companies; (nonfinancial businesses and individuals can use the system through a participating bank)
    5. Membership rulesOpen to institutions with current account at BoK, subject to agreed contract with BoK
    6. Degree of centralizationInvolves multiple accounts at BoK, for both foreign currency and won funds transfers and for some types of intrabank transfers; one central processing center
    7. Limitations on valuePredominantly large-value: 1 billion won minimum size for third-party transactions, but no explicit minimum for interbank transactions; there are six subsystems in BoK-Wire; in addition to won and foreign currency funds transfers, the BoK-Wire network also handles file transfers for background information related to some of the transactions carried out, as well as some types of statistical reporting not directly related to specific transactions
    8. Type of settlementRTGS
    9. Recovery of operating costsPartial cost recovery through user fees and charges (BoK carries personnel costs of development); usage fees currently range from a flat 220 to 440 won per transaction; no membership or joining fee, and no charge for inquiries
    10. Legal and/or contractual frameworkBoK operating regulations and contracts between participants and BoK
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic payment orders, both credit and debit—debit orders include, for example, automatically scheduled repayments of intraday interbank loans (“call transaction funds”), or the posting of debits arising from the designated-time net settlement of other payments systems on BoK-Wire; the payments handled relate to both won and foreign currency domestic transfers, transactions in public sector bonds, BoK loan operations, some transactions with the national treasury, some intrabank transfers, and some internal BoK transfers
    2. Number and value of transactionsPre-BoK-Wire: total transactions through BoK accounts in 1993 amounted to 2,585 trillion won (10 times GDP), while the number of settlement transactions was 1.2 million; in BoK-Wire: for 1995, the number of settlement transactions through BoK-Wire was 1.1 million, and the value of total transactions through BoK-Wire amounted to 5,407 trillion won
    3. Timetable of operationsBoK-Wire network operates 24 hours, but only during 9:30 a.m.-4:30 p.m. for funds transfers (9:30 a.m.-1:30 p.m. on Saturdays); file transfers related to BoK loan and treasury transactions take place outside normal business hours
    4. Queuing mechanismsDuring the day, queues operate on a FIFO basis, with funds balances of participants with queued payments checked every 10 minutes; participants can cancel specific queued transactions for subsequent reentry but cannot manage queued items in other ways; however, frequent use of the queue file is discouraged (to this end, and under the BoK-Wire regulations, the BoK may use suasion, more formal “notices of correction,” and it may ultimately cancel the offender’s participation in BoK-Wire; at the end of the day, payments still queued are canceled
    5. Availability and pricing of intraday liquidityNo intraday overdrafts permitted, and no intraday BoK lending of other forms; however, BoK-Wire does facilitate intraday interbank lending, whether brokered or direct; it allows for scheduled drawing and automatic repayment of these intraday “call transactions funds,” at particular designated times during the day; the level of reserves held day to day by banks under reserve requirements (and available to support intraday payments) is relatively high
    6. Overnight creditCall/overnight money market; BoK lending facilities, which include a component for temporary liquidity shortfalls, and other BoK market transactions; day-to-day liquidity management is facilitated by the fact that reserve requirements are averaged, and even though the level of the requirement differs according to the type of deposit to which it is applied, the overall level of requirements is of the same order of magnitude as the relatively high “basic requirement” of 9 percent
    7. Availability of information to participants“V” design; participants, including BoK, can inquire real time as to status of both queued payments and queued receipts; in addition, summary reports of activity can be produced at any time by participants to facilitate intraday funds management; BoK-Wire also handles on-line submission of broader statistical information, such as total deposit/lending balances
    8. Time of settlement finalityReal-time finality
    9. Operational connections with other domestic systemsBoK-Wire handles designated-time net settlement for other domestic payments systems run by the Korea Financial Telecommunications and Clearing Institute (KFTC)—bill clearing, giro, ATM clearing, cashiers checks, and other net interbank settlements; it also handles DVP transfers/registration of public securities transactions (including securities pledges)
    III. Risk Control Measures
    1. Limits (bilateral or multilateral)No (participants make own arrangements for intraday interbank lending)
    2. Use of collateralNo (participants make own arrangements for intraday interbank lending.
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityContingency arrangements in place; there is a backup for the main computer, although this is in the same center as the main computer and is a “cold stand-by” arrangement—15-minute delay during which transactions would be suspended; most peripheral equipment is also duplicated; there are regular preventative inspections of hardware; communications network is mainly leased lines, and there is a backup communication circuit
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemDuring 1995, daily average transactions processed through BoK-Wire reached about 3,700, with a value of about 18 trillion won; capacity is 192,000 transactions per day; over the same period, delays in the designated cutoff times arose 48 times owing to miscalculation of net results, computer troubles, and other reasons
    2. Projects under way and evolutionA new net settlement system was expected to begin operating in late 1996 for domestic currency funds transfers arising from interbank foreign exchange transactions; some further risk reduction measures are under study; also, a future move to a “hot stand-by” backup computer system is being promoted, as is establishment of an additional backup communications circuit
    Table A13.Malaysia
    System
    I. General Organization
    1. Name of the systemSistem Pemindahan Elektronik untuk Dana dan Sekuriti (SPEEDS) comprising two subsystems, IFTS (Interbank Funds Transfer System, launched on December 15, 1989) and SSTS (Scripless Securities Trading System, launched on January 2, 1990)
    2. Owner/operator/regulatorCentral Bank of Malaysia
    3. Governing bodyGovernor of the Central Bank of Malaysia
    4. ParticipantsSPEEDS has 134 participants, of which 86 are direct members and 48 indirect members; participants comprise banks and nonbanks
    5. Membership rulesOpen to all current account holders at the Central Bank of Malaysia, subject to approval by the Central Bank of Malaysia
    6. Degree of centralizationOne account per member
    7. Limitations on valueNo limit of transfer of funds between members; minimum amount RM 50,000 for third-party transactions
    8. Type of settlementEnd-of-day multilateral net settlement
    9. Recovery of operating costsFull cost recovery based on number of transactions and annual membership fees
    10. Legal and/or contractual frameworkSPEEDS participation rules plus code of conduct and market practices of scripless trading in the Malaysian securities market
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsAutomated credit/debit transfer of funds via SPEEDS system
    2. Number and value of transactionsAverage 6,000 transactions daily, with a total turnover about RM 37 billion a day
    3. Timetable of operationsSPEEDS system operates 24 hours; system cutoff time for each business day is at 6:00 p.m. on weekdays and 1:00 p.m. on Saturday
    4. Queuing mechanismsFIFO during the day, payments cannot be canceled but possibility exists of returning payments to sender
    5. Availability and pricing of intraday liquidityLending and borrowing of cash (“clean money”) by the central bank at various tenors; interest rates fixed by the central bank; credit lines between participants at market rates; participants not allowed to overdraw their settlement account at the central bank
    6. Overnight creditOvernight credit through borrowing from pool consisting of funds belonging to participating member banks or borrowing from central bank, whichever is appropriate
    7. Availability of information to participantsHard-copy advices are printed for all incoming and outgoing payments; a participant can inquire into its cash position as well as its securities holdings, and the relevant reports are printed
    8. Time of settlement finalityReal-time finality
    9. Operational connections with other domestic systemsNo
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No limits
    2. Use of collateralRepos
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityA backup system is available at another site
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemDelays in cutoffs were encountered during power, communication line, or system failures; average 2 to 3 minutes to process a payment; peaks in volume between noon-3:00 p.m.; the SPEEDS system has four central processing units, with 32 megabytes of memory each
    2. Projects under way and evolutionThe SPEEDS Central Host Computer System was recently upgraded
    Table A14.Mexico
    System 1System 2
    I. General Organization
    1. Name of the systemSistema de Atención a Cuentas Habientes (SIAC)Sistema de Pagos Electrónicos de Uso Ampliado (SPEUA)
    2. Owner/operator/regulatorBanco de México performs the functionsBanco de México performs the functions
    3. Governing bodyDirección General de OperaciónDirección General de Operación
    4. Participants100 comprising banks, brokerage houses, and the Treasury50 banks are direct participants
    5. Membership rulesRestrictedOpen to banks’ clients
    6. Degree of centralizationOne account per bank; one processing siteOne account per bank; two sites
    7. Limitations on valueNo limitationsMex$500,000 and above
    8. Type of settlementGross (real time)Multilateral net at end of day
    9. Recovery of operating costsA global fee is charged annually; no charge is made for transactionsCharge per transaction is very low; not enough to recover operating cost
    10. Legal and/or contractual frameworkCentral bank regulation and contractual agreementsCentral bank regulation and contractual agreements
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic transfersElectronic transfers
    2. Number and value of transactionsNot applicableAbout 1,000 daily
    3. Timetable of operationsDaily
    4. Queuing mechanismsNo queuingFIFO; trying to implement an optimization routine
    5. Availability and pricing of intraday liquidityOverdrafts are limited and a charge is madeWorks with credit provided by the participants bilaterally
    6. Overnight creditAverage reserve balance must be nonnegative; money market at end of dayNone
    7. Availability of information to participantsInformation about balances and operations made are available to all clientsEvery participant (bank) can trace its payment orders
    8. Time of settlement finalityReal-time finalityAll transfers final; reversals are considered as separate operations
    9. Operational connections with other domestic systemsConnected with SPEUA; will be connected to a DVP system for securities transactionsConnected with SIAC; will be connected to a DVP system for securities transactions
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)Limited by collateralMultilateral
    2. Use of collateralEvery bank has to pledge a minimum of collateralNo
    3. Loss-sharing agreementsNoneLimited to the largest credit given
    4. Unwinding clausesNoneNone
    5. ReliabilityTwo computersThree computers
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNoneNone
    2. Projects under way and evolutionA new system for managing accounts at central bank is under wayIt is planned to reduce risk by asking collateral for credit lines for operation
    Table A15.Netherlands
    System
    I. General Organization
    1. Name of the systemTOP, operational in mid-1996
    2. Owner/operator/regulatorSupervisor: Nederlandsche Bank (DNB)
    3. Governing bodyCentral bank
    4. ParticipantsAround 100, basically all banks; no tiering
    5. Membership rulesOpen; all registered banks can have an account
    6. Degree of centralizationMost banks have only one account, but several accounts per participant is possible
    7. Limitations on valueNo limitations on size, but almost totally large value
    8. Type of settlementRTCS
    9. Recovery of operating costsFull cost recovery
    10. Legal and/or contractual frameworkContractual agreements between DNB and the participants
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic credit transfers
    2. Number and value of transactionsNumber of transaction: 6–8 million a year, for value of f. 7.5 billion a day
    3. Timetable of operations7:30 a.m. to 4:30 p.m.; settlement of the private sector clearing systems at 2:00 p.m.
    4. Queuing mechanismsDifferent classes of priority (highest degree of priority for settlements coming from the netting systems); cancellation of payments subject to strict conditions and requires the approval of DNB; possibility of entering the transactions with a future value date
    5. Availability and pricing of intraday liquidityFree intraday credit for the total amount of the deposited collateral
    6. Overnight creditCollateralized overnight credit
    7. Availability of information to participantsInformation on total amount of settled payments and on total amount of queued transactions, both split into debits and credits; information on potential credits is limited
    8. Time of settlement finalityReal-time finality
    9. Operational connections with other domestic systemsConnections with retail systems
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No limits; limit is intraday credit limit, which depends on collateral deposited
    2. Use of collateralFor backing credit
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityBackup and contingency provisions
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot yet available; the system to be operational in mid-1997
    2. Projects under way and evolutionsPrivate sector clearinghouses, which now settle once a day, may be reorganized to settle more than once a day
    Table A16.Portugal
    System
    I. General Organization
    1. Name of the systemSistema de Pagamentos de Grandes Transacçöes (SPGT), scheduled to function early in 1996
    2. Owner/operator/regulatorBanco de Portugal/SIBS (Sociedade Interbancária de Serviços, S.A.)
    3. Governing bodyBoard of Directors, Banco de Portugal
    4. ParticipantsAlmost 50 direct participants; no indirect participation, only banks and bodies of the central administration
    5. Membership rulesOpen to banks or other credit institutions that are direct participants in the interbank clearing systems, provided that they possess the minimum technical facilities required by the system, have signed the SPGT membership contract, and have paid the membership fee
    6. Degree of centralizationSingle settlement account for each participant; centralized in the Banco de Portugal’s head office
    7. Limitations on valueClearing systems settlements: operations contracted and processed via SISTEM (Money Market System); operations with the Banco de Portugal (except SISTEM); credit transfers (interbank, interbank on behalf of customers, and to and from the treasury) provided that their unit value is equal to or over Esc 100 million and their value date falls no more than two working days later; transfers ordered by participants in the SPGT in favor of nonparticipants, irrespective of their unit value but with same-day value date
    8. Type of settlementGross (real time)
    9. Recovery of operating costsFull recovery; the price structure is based on parameters such as amount, entry time, queuing time, settlement time (normal and late-hour)
    10. Legal and/or contractual frameworkContractual agreement between the users and the Banco de Portugal (membership contract); operating rules of SPGT are laid down in its specific regulation approved by the Board of Directors of the Banco de Portugal
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsCredit transfers in electronic form; specific types of messages were designed to fulfill different kinds of payments/settlements
    2. Number and value of transactionsProjected global volume of messages/settlement orders and confirmations of the SPGT settlement system amounts to approximately 4,000 a day; total value not available
    3. Timetable of operationsOperations entered in the system are processed/settled in accordance with a schedule starting at 8:30 a.m. and ending at 4:00 p.m.; the normal period ends at 1:30 p.m.; late transfers (after 1:30 p.m.) are subject to additional charges, which increase according to the following time tiers: 1:30 to 2:30 p.m.; 2:30 to 3:30 p.m.; 3:30 to 4:00 p.m.
    4. Queuing mechanismsOrders that give rise to a position that exceeds the predefined credit ceiling are held in a queue made up of three blocks of operations with different priorities: operations related to electronic/teleclearing procedures, whose net balances are integrated in the SPGT, at 8:30 a.m., have highest priority; remaining pending operations are stored within each block of priorities in chronological order (FIFO); to accelerate settlement of queuing operations, there are specific operational and technical procedures, such as permanent virtual global netting, periodical simulations, ordering in the same priority by increasing value, and changing predefined priorities (B and C) to priority A (this can only be used while the settlement of the balances of interbank clearing systems is pending); any operation entering the queue must be covered within one and one-half hours and always before the normal closing hour of the queuing mechanism (1:30 p.m.); the ordering participant may ask the system to cancel a queuing operation (for this purpose, a confirmation of the beneficiary of the transaction is required)
    5. Availability and pricing of intraday liquidityTo grant intraday liquidity SPGT has reserve requirements and intraday credit instruments; the latter are a stand-by collateralized current account credit facility (with no interest charges) and a special credit facility called supplementary intraday liquidity facility; the stand-by collateralized current account allows the participants to have a debit position to a predefined ceiling established on the basis of some indicators (e.g., debit balances in the clearing systems); the supplementary intraday credit facility is a form of repo of eligible securities (treasury bills, central bank deposit securities, and other money market instruments issued by the Banco de Portugal); this intraday credit instrument was created to provide participants with a means of satisfying the intraday liquidity requirements arising from the necessity to cover queuing operations within the time limit of one and one-half hours
    6. Overnight creditParticipants have until 4:00 p.m. to cover intraday guaranteed credit balances as calculated at 1:30 p.m., by recourse to market operations among themselves and/or with Banco de Portugal via SISTEM; as a last resort and depending on an assessment of the particular case, the Banco de Portugal may authorize use of guaranteed overnight credit; such operation will be of an exceptional nature and will be subject to an interest rate higher than the highest overnight interest rate observed on the interbank money market during the day
    7. Availability of information to participants“Y” design; the following information is made available to participants through the SPGT/SIBS channel: current balance, status of a specific operation, queued operations (active and canceled), operations with future value date, and status of SPGT sessions; in parallel with the implementation of the SPGT/SIBS channel, the Banco de Portugal developed an on-line direct link (independent from SIBS infrastructures) between the central bank settlement system and the potential SPGT participants; in addition, the on-line direct link also gives information about the balances from previous days and settled operations (including those from previous days)
    8. Time of settlement finalityReal time; operations and transfers are considered final from the moment they are entered to the receiving settlement account; operational connections with other domestic systems
    9. Operational connections with other domestic systemsThe connections between the SPGT and the other domestic-interbank (retail) and stock exchange—systems are realized by the settlement of the net balances automatically integrated into the system; for Stage III of EMU, the SPGT will be linked to TARGET
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No limits (bilateral or multilateral) are implemented
    2. Use of collateralAll kinds of intraday credit are fully collateralized
    3. Loss-sharing agreementsNot applicable
    4. Unwinding clausesOnly in the interbank (retail) netting systems indirectly related, on the settlement level, with SPGT
    5. ReliabilityThe SPGT—an encrypted and authenticated system—is protected with backup and contingency plans to be activated on the time limit of 30 minutes
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot available (the system is in the testing phase)
    2. Projects under way and evolutionFor the future implementation of the TARGET system and the interlinking to SPGT, preliminary studies are being developed
    Table A17.Spain
    System 1System 2
    I. General Organization
    1. Name of the systemSettlement Service of the Banco de España (SLBE), future Spanish RTGS developed on the basis of present Money Market Telephone Service; to be operational during first half of 1997Madrid Clearing House (MCH), second session multilateral net clearing system; will fully comply with the Lamfalussy standards as of first quarter of 1997
    2. Owner/operator/regulatorAll functions performed by the Banco de España (BdE)MCH is owned by participants; BdE lays down and adapts the rules and regulations
    3. Governing bodyBdEMCH governed by a board chaired by the BdE
    4. Participants264 direct participants and 46 indirect participants (financial firms, mainly banks) at end-1995; most participants are credit organizations, all of which must have an account with the BdE54 direct participants, all of which are credit organizations; 214 indirect participants
    5. Membership rulesOpenOpen
    6. Degree of centralizationOne account per bankOne account per bank
    7. Limitations on valueOnly large-value payments; minimum size of each transaction is Ptas 50 millionOnly large-value payments; minimum amount of Ptas 100 million for the transfers from/to nonresidents for the accounts of customers
    8. Type of settlementGross; progressive shift from end-of-day settlement to real-time settlement (in the end-of-day settlement, the payments are posted provisionally during the day on a gross basis and are final only at the end of the day at 5:00 p.m.)End-of-day multilateral net settlement
    9. Recovery of operating costsFull recovery of operating costs in the existing and future systems; in the present system, fixed monthly fee that covers the first 100 transactions, and different fee for each transaction thereafterFull recovery of operating costs; all direct participants pay the same access fee plus an annual fee according to the number of transactions handled
    10. Legal and/or contractual frameworkCurrent system: contractual agreement between the BdE and the participants based on a specific circular and on the Autonomy Act, which states that the BdE is responsible for promoting the good performance and stability of the interbank markets and of the payment systems; new system will require a change in the contractual agreement and in the circular to get intraday finality of paymentsReforms planned in the second session of the MCH will require a change in the existing rules to get irrevocability of payments; changes in the current bankruptcy legislation to make it consistent with the new MCH rules are under consideration
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsCurrent and future system: checks not accepted (only electronic credit transfer transactions); BdE verifies the absence of discrepancies between sending and receiving banks before processing transactionsElectronic credit transfers processed through SWIFT network corresponding to two types of cross-border transactions; counterpart in pesetas of foreign exchange purchase and sale; large-value transfers to and from nonresidents denominated in pesetas (including interbank transfers and transfers for the account of customers; only the latter type of transfer should be kept in the MCH)
    2. Number and value of transactions3,498 transactions for Ptas 10 trillion in 1995 on daily average7,806 transactions, for Ptas 5.1 trillion in 1995 on daily average
    3. Timetable of operationsPresent system: first session from 3:00 p.m. to 5:00 p.m. (value date on the following day or on subsequent days); second session: from 8:00 a.m. to 1:00 p.m. (value date on the same day or subsequent days); settlement of orders becomes final at 5:00 p.m. (schedule may change in future system)Payment instructions exchanged daily through SWIFT between members; at 10:00 a.m. each participant transmits to the NCH the total value and volume of the transfers it has ordered in favor of each other member; at 11:00 a.m. the NCH sends to the BdE the multilateral net balances for posting in the accounts; the balances are settled provisionally, but the settlement becomes final at 5:00 p.m. (schedule may change in the new system)
    4. Queuing mechanismsFuture system will have pending queues; transfers will be classified by assigning a different priority to each type of orders; checking of orders will be carried out using a criterion called “bypass FIFO”; credit institutions will be able to assign the highest priority to one of the payments in the waiting queue; an optimization process will be definedIn case the bilateral or multilateral credit limits are exceeded, payment orders will be queued; queued payments will be processed using “bypass FIFO”; banks will be authorized to modify the priority of payments and to revoke orders pending in the waiting queue
    5. Availability and pricing of intraday liquidityTechnical and operational procedures, such as optimization routines and change of priorities, are under study; intraday overdraft facilities might be provided, but they will be fully collateralizedNo
    6. Overnight creditInterbank money market for overnight credit and repo market for public debt securities are both active and liquid; overnight open market operations are carried out through the repo market; the BdE can also provide liquidity against collateral on a discretionary basis; reserve requirements are calculated on a ten-day average basisInterbank money market for overnight credit and repo market for public debt securities are both active and liquid; overnight open market operations are carried out through the repo market; the BdE can also provide liquidity against collateral on a discretionary basis; reserve requirements are calculated on a ten-day average basis
    7. Availability of information to participants“V” design; participants have access to the pending queues and to the balances of their accountsThe participants will have comprehensive on-line information about their positions, limits available, collateral, and payments in the queuing mechanism
    8. Time of settlement finalityAt present, end of day; future system: real timeEnd of day
    9. Operational connections with other domestic systemsSettlement agent for the large-value and retail net systems; the book-entry public debt market system managed by BdE settles in the system on a gross basis and provides DVP servicesSettles in the RTGS
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No limits in the current and future systems; currently all entries are provisional until close of business day; in the future system, payments will be processed if there are sufficient funds in the account or from the intraday fully collateralized facilityFuture system: bilateral net credit limits established by each participant and multilateral net debit limit based on a portion of the sum of bilateral limits received by each participant
    2. Use of collateralIf the BdE decides to provide liquidity, it will be against collateralEach participant will post collateral based on the highlight bilateral credit limits it has granted, so that the system could settle in the event of a default of a member having the highest debit position
    3. Loss-sharing agreementsNot considered nowYes: loss-sharing rules will be set up for each member on the basis of the bilateral limits
    4. Unwinding clausesThe existing unwinding clauses will be suppressed in the future systemUnwinding clauses exist in the current system and may be maintained in the new one
    5. ReliabilityThe system of computer links has some mechanisms to deal with contingencies; former telephone service will be available as a second level of backupThe system of computers and communications supplied by SWIFT has backup procedures and systems against contingencies
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicableNot applicable
    2. Projects under way and evolutionTechnical and operational specifications of the new system are under way at the BdE; the main lines of the project have been discussed with banking associationsWorking group of BdE and commercial banks, chaired by the BdE, to reform the system and to ensure full compliance with the Lamfalussy standards
    Table A18.Sweden
    System
    I. General Organization
    1. Name of the systemClearing and Interbank System (RIX), since 1990 operating on real-time gross basis
    2. Owner/operator/regulatorOwner: Sveriges Riksbank (Central Bank of Sweden); operator: Riksbank; regulator: Riksbank, but the financial sector in general is supervised by the Swedish Supervisory Authority
    3. Governing bodyBoard of the Riksbank
    4. ParticipantsParticipants must be authorized by the Riksbank; currently 22 banks, of which 10 are foreign owned; Bank Giro Central (BGC), Swedish Register Center (VPC), OM Group (futures and options clearinghouse), Sveriges Riksbank, the National Debt Office, and RRV (the Swedish National Audit Office) are also members; others may have indirect access via a participant
    5. Membership rulesBoard of the Riksbank decides the criteria for access; banks with a capital base of European currency unit (ECU) 10 million authorized to do banking business in Sweden can be members
    6. Degree of centralizationEach participant has a current account at the Riksbank; computing/processing is done at the Riksbank
    7. Limitations on valueIn principle, no limits, but only large-value transactions are settled via RIX; customers’ large-value transfers in standard format (mentioned above) should exceed SKr 20 million according to an agreement among commercial banks
    8. Type of settlementRTGS; some banks have themselves established bilateral netting on an ad hoc basis and use RIX for settling the net amounts; for clearinghouses (VPC, BGC, and OM) settling on a net basis there are special procedures to ensure that settlement can be processed only if sufficient funds are available
    9. Recovery of operating costsIn principle, full cost pricing; the annual fee is SKr 350,000 (includes payment for one encrypted communication line per participant within the area of Stockholm)
    10. Legal and/or contractual frameworkPayment issues are dealt with in different laws, but there is no explicit law for RIX; the constitution and Sveriges Riksbank Act (most recently amended 1993) stipulate that the Riksbank shall promote a safe and efficient payment system
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsCredit transfers and debits, which, however, also need to be confirmed by the receiving party; for debits and credits the messages can be sent along with the transaction if in free text format; third-party large-value transfers can only be sent in a standard format according to the Swedish Bankers’ Association; a transaction will be settled only if it is confirmed by the counterpart and if there are sufficient funds on the debiting account
    2. Number and value of transactionsAverage daily transactions:
    1992199319941995
    In billions of kronor178164160214
    In percent of GDP12111113
    Average number of transactions per day in 1992-95: 500
    3. Timetable of operations8:15 a.m.-4:15 p.m., but settlement of submitted transactions can take place until 4:30 p.m; there may be some time limits for certain kinds of transactions set by the participants themselves
    4. Queuing mechanismsNo queuing mechanism in the system; submitted transactions are canceled if they are not confirmed before closing
    5. Availability and pricing of intraday liquidityFrom 1995, intraday credit has been fully collateralized; in September 1992, limits on uncollateralized credits were introduced based on historical experience (the limit was set at 22 percent of the bank’s base capital; it was reduced to 16 percent January 1, 1994, and to 4 percent July 1994); there is no interest on collateralized intraday credit; since April 1994 the level of required reserves has been zero
    6. Overnight creditIn June 1994, the Riksbank introduced a new system with an interest corridor to substitute for a system with an interest scale and a large number of steps; the lending rate is the ceiling and the deposit rate is the floor, which usually is set 1.5 percentage points lower than the ceiling (both rates are set by the Governing Board); the repo and reverse repo rate fluctuate within the band and are set by the governor; according to its capital base, each bank has a credit facility and deposit facility up to 4 percent of the capital base to the announced ceiling and floor rates; if the bank exceeds that limit, 1 percentage point will be added to the lending rate and subtracted from the deposit rate to facilitate the efficiency of the money market; all lending is fully collateralized; the Riksbank uses repos and reverse repos to fine-tune the level of reserves; usually, weekly auctions are conducted for repos/reverse repos with maturities of two weeks
    7. Availability of information to participants“T” design
    8. Time of settlement finalityReal time, when receiving participant confirms transaction
    9. Operational connections with other domestic systemsRIX is the hub for settlement of securities held in the VPC, of transactions by BGC—which includes data clearing of checks and card transactions that mainly are cleared by SERVO (owned by commercial banks)—and BABS (owned by savings banks); RIX will be later connected with TARGET
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)Intraday credit is fully collateralized (banks involved in bilateral netting are themselves responsible for the risk of these arrangements)
    2. Use of collateralThe Riksbank requires government or mortgage securities as collateral; overnight credit as well as intraday credit will be granted to 97 percent of the face value of the collateral; the Riksbank accepts collateral denominated in foreign currency for intraday borrowing
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityBackup and contingency plans are developed and frequently tested
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemNot applicable
    2. Projects under way and evolutionConfirmation procedures to be reconsidered and replaced with a queuing system; connection with European Real-Time Gross Settlement System (Interlink); automated integration with the systems of the participating banks; there are plans to provide the system with the capability of using SWIFT messages
    Table A19.Switzerland
    System
    I. General Organization
    1. Name of the systemSwiss Interbank Clearing System (SIC), opened June 10, 1987
    2. Owner/operator/regulatorOwner: Swiss National Bank (SNB) and a number of commercial banks; operator: SNB and Telekurs AG; regulator: SNB
    3. Governing bodySNB (all modifications proposed by joint SNB/commercial bank committees must be approved by the SNB)
    4. Participants214 direct participants; around 100 indirect participants (December 1995); banks with small payment volumes can use a SIC member as correspondent
    5. Membership rulesRestricted to banks within the meaning of the Swiss banking law, banks located in Switzerland and the Principality of Liechtenstein, and banks having a giro account with the SNB
    6. Degree of centralizationOne account per bank; one processing site under normal circumstances; two computers (one active, one backup) at the SIC computer center (one additional computer, for development, at a remote computer center)
    7. Limitations on valueLarge-value and retail; no binding upper or lower limits
    8. Type of settlementRTGS
    9. Recovery of operating costsFull cost recovery, fee per transaction; for receiving bank: flat rate fee; for sending bank: fee depending on the time the payment is initiated, the time it is settled, and whether it is smaller or larger than Sw F 100,000 (pricing is intended to reward the sending banks for early submission and settlement)
    10. Legal and/or contractual frameworkPrivate law agreements between the SNB, Telekurs AG (which provides the computer center service), and the participating banks; an agreement between SNB and the member banks stipulates that the settled payments are final
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic credit transfers in Swiss francs; SIC is the only system available for making large-value electronic payments between Swiss banks
    2. Number and value of ransactionsIn 1995, 380,000 payments were processed on an average day and 1,150,000 payments on the peak day; in value between 140 and 150 billion Swiss francs are processed on an average day and over 250 billion Swiss francs on peak days (a value corresponding to the Swiss GDP is processed within little more than two days); the daily turnover of reserve balances is between 60 and 110; in 1995, 96 million payments were processed, with an average value of Sw F 335,000 per payment
    3. Timetable of operationsPayments can be submitted for same-day settlement, or up to five days before the settlement date; SIC operates 24 hours a day on bank business days. Settlement period of the cycle for bank business day T is about 22 hours from 6:00 p.m. on T - 1 to 4:15 p.m. on T; two cutoff times (at 3:00 p.m. and 4:00 p.m.); between 3:00 p.m. and 4:15 p.m., only cover payments (payments between SIC participants to adjust their positions); from 3:00 p.m. to 4:00 p.m., and drawings on preestablished overnight Lombard credit lines with the SNB (from 3:00 p.m. to 4:15 p.m.) can be accepted; the other payment orders entered in the system after the first cutoff time (at 3:00 p.m.) have their value date changed to the next day (T+ 1); Lombard credits are available overnight at a penalty rate of 2 percent above market rates
    4. Queuing mechanismsPriority level given by the sending bank; for a given priority level, FIFO; cancellation can be done unilaterally by the sending bank before the first cutoff time at 3:00 p.m.; after 3:00 p.m., the consent of the receiving bank is needed; otherwise, a penalty rate of 5 percent over the market rate is charged; payments unsettled at 4:15 p.m. are canceled automatically (in this case, the receiving bank is entitled to charge the sending bank a penalty surcharge of 5 percent above the market rate; the sending bank must resubmit the payment the following day)
    5. Availability and pricing of intraday liquidityNo intraday overdrafts on the books of the SNB
    6. Overnight creditOvernight Lombard loans available from SNB against collateral, 2 percent above market rate
    7. Availability of information to participants“V” design; participants can use a real-time inquiry feature to monitor the current status of all incoming or outgoing payment messages whether they are settled or queued
    8. Time of settlement finalityReal-time finality (the payments once settled are final); the bankers’ association recommends that customers be credited same day
    9. Operational connections with other domestic systemsLink with the postal giro system; SIC has been linked since March 1995 with SECOM, which is the Swiss real-time securities clearing system operated by SEGA, the Swiss Securities Clearing Corporation; this link provides a simultaneous DVP procedure for securities transfers on a trade-by-trade basis; SECOM transfers the securities to the buyers’ accounts only upon confirmation from SIC of the settlement of the cash leg of the transaction; at end-1995, around 20,000 securities transactions with a value of around Sw F 4 billion were settled through this DVP procedure
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No limits
    2. Use of collateralOnly if overnight Lombard loans granted by the SNB are used
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityBackup computer available at the SIC computer center and a remote computer center; in case of major breakdown of SIC (e.g., irrecoverable software errors), a system called Mini-SIC based on daily net multilateral clearing of payments recorded on magnetic tapes can be activated; this system settles on the books of the SNB
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemSystem designed for handling 2.0 million payments per day and 200,000 to 300,000 payments per hour; on peak days, up to 1,1 50,000 payments have been processed (December 1995); on peak days, queues can contain up to 100,000 payment messages; developments since the introduction of SIC: (1) balances with the SNB in giro accounts have been reduced by two-thirds; (2) payments are entered in the system earlier (40 percent of the payment volume and 3 percent of the value is settled before 8:00 a.m., and at 2:00 p.m. these figures are respectively 80 percent for the volume and 50 percent for the value); (3) smaller payments are entered before larger ones; and (4) very large payments (over Sw F 100 million) are sometimes split up before the end of the day to speed up settlement, or in the exceptional cases of gridlock
    2. Projects under way and evolutionNone
    Table A20.Thailand
    System
    I. General Organization
    1. Name of the systemBank of Thailand Automated High-Value Transfer Network (BAHTNET), which began operations May 24, 1995, is an RTGS that conducts interbank transfers, current account inquiries, and bilateral communication for participants in the Bangkok metropolitan area; third parties were, from October 1995, able to make transactions directly via a participating member; large-value checks with next-day or two-day settlement and Bank of Thailand (BOT) checks with same-day settlement will, for the time being, still be available as a substitute to BAHTNET
    2. Owner/operator/regulatorThe BOT has established BAHTNET and operates, supervises, and owns it
    3. Governing bodyA deputy governor
    4. ParticipantsAt November 1995, 32 participants: commercial banks, foreign-owned banks, the Industrial Finance Corporation of Thailand, the Government Savings Bank, and the Government Housing Bank; all maintain accounts at the BOT; third-party transactions can take place via an institution having an account at the BOT; in 1996, finance companies could become direct participants
    5. Membership rulesThe BOT approves all members
    6. Degree of centralizationBanks have one consolidated account at the BOT
    7. Limitations on valueNo minimum limit has yet been established
    8. Type of settlementRTGS
    9. Recovery of operating costsIn November 1995, an interbank transaction cost a flat fee of Baht 10, and a third-party transaction cost Baht 12 plus a monthly charge of Baht 3,500 per member
    10. Legal and/or contractual frameworkThe BOT has, according to the BOT Act, the authority to operate clearing arrangements with settlement capabilities; rules and regulations for BAHTNET have been issued; BOT is in the process of drafting an Electronic Transfers Act
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic credit transfers; standards set by the BOT
    2. Number and value of transactionsFrom May 24, 1995 to May 23, 1996, about 131 transactions per day with an average value of Baht 76 million ($3 million) per transaction
    3. Timetable of operations9:30a.m.-5:30 p.m.
    4. Queuing mechanismsNo queuing; transaction rejected if no funds on the account; however, sending bank can inquire about its balance before requesting a transaction
    5. Availability and pricing of intraday liquidityRequired (liquidity) reserves are 7 percent of deposit liabilities; 2 percent must be kept on the current account at the BOT at the end of the day, no more than 2.5 percent must be in vault cash, and the rest in government securities; thus, 2 percent of liquidity reserves (held in the current account at the BOT), in addition to excess reserves, can be used as intraday liquidity; an Intraday Liquidity Facility (ILF), fully collateralized, was introduced February 1, 1996; if a bank fails to repay at the end of the day, a penalty plus overnight rate is charged
    6. Overnight creditIn addition to the Exchange and Equalization Fund (8:30 a.m.-12:00 noon), the repo market (second round 2:00 p.m.-3:30 p.m.), and the money market (8:30 a.m.-3:30 p.m. normally), the banks have, until 4:00 p.m., access to overnight money via the loan window up to a preapproved percentage of their deposits, seven days maturity, fully collateralized, at the “bank rate”; BOT may deny such credit; credit used via the loan window and the ILF cannot together exceed the limit of the loan window; required reserves are averaged over the two-week maintenance period
    7. Availability of information to participants“V” design
    8. Time of settlement finalityRTGS
    9. Operational connections with other domestic systemsIt is the intention to use BAHTNET to settle the netted amounts from two other payment initiatives of the BOT (CHEQUECLEAR and MEDIACLEAR) at the end of the day; the domestic net settlement of Visa card via BAHTNET is also scheduled to start in July 1996; DVP system for government securities will, at a later stage, be incorporated with BAHTNET
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)No explicit limits
    2. Use of collateralAll credit provided by the BOT, including the intraday liquidity facility and the Loan Window, has to be fully collateralized according to the BOT Act
    3. Loss-sharing agreementsNo
    4. Unwinding clausesNo
    5. ReliabilityA team is developing backup and contingency plans
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemAs of November 1995, no major problems
    2. Projects under way and evolutionBAHTNET service will be extended to nonbank financial institutions and the BOT’s own regional branches and offices; it is planned to combine BAHTNET with a real-time electronic DVP system for government securities
    Table A21.United Kingdom
    System
    I. General Organization
    1. Name of the systemClearing House Automated Payment System (CHAPS), established in 1984; in September 1992, decision taken by the Bank of England (BoE) and the Association for Payment Clearing Services (APACS) to transform CHAPS into an RTGS system; RTGS implemented in April 1996
    2. Owner/operator/regulatorOwned and controlled by the member banks via the CHAPS Clearing Company; BoE has no formal regulatory role with respect to CHAPS (its role is that of a general overseer of the payment system, including CHAPS)
    3. Governing bodyThe Board of the CHAPS Clearing Company: one director per member bank, with the chairman chosen among the directors
    4. Participants16 direct participants in 1996, including the BoE; approximately 400 indirect participants
    5. Membership rulesRestricted to appropriately supervised institutions (U.K. banks and building societies, credit institutions from other EU member states); minimum volume required: 0.5 percent of the annual volume of payments exchanged in the system; evidence of technical/managerial capability; settlement account at BoE
    6. Degree of centralizationOne settlement account per direct member; the system is made up of a central RTGS processor at BoE, to which all payment messages must first be routed before being released to the decentralized CHAPS network
    7. Limitations on valueNo maximum or minimum value
    8. Type of settlementRTGS
    9. Recovery of operating costsNew members of CHAPS pay an entry fee and a share of the operating costs; members have paid their own costs of transforming to RTGS; the BoE has paid for the development of the RTGS central processor but makes a per-item charge for each payment processed through RTGS, to cover operating costs and depreciation
    10. Legal and/or contractual frameworkNo statute relating to the operations of CHAPS; contractual agreements between members (CHAPS rules) and between members and the BoE (master repurchase agreement, RTGS account mandate that sets out the conditions under which the participant accounts will be maintained by the BoE)
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsElectronic credit transfers in pound sterling
    2. Number and value of transactionsIn 1995, average daily value of £107 billion, average daily volume of 50,000, and average transaction value of £2.1 million (equivalent to the value of U.K. GDP every seven days)
    3. Timetable of operationsRTGS processor opens at 8:00 a.m. for crediting of cash ratio deposit balances and of repo proceeds to banks’ settlement accounts, and closes at 5:00 p.m. CHAPS opens at 8:30 a.m. and closes at 3:45 p.m. (the final CHAPS cutoff for customer transfers is 3:10 p.m.; there then follows a 35-minute period in which banks and certain other institutions may initiate CHAPS transfers for liquidity management purposes); RTGS also operates an end-of-eay transfer scheme, which allows the banks to make direct transfers between their settlement accounts shortly before the end of the RTGS day (just before RTGS closes, intraday repos are terminated and settlement accounts debited with the repurchase price; also cash ratio deposit balances are transferred from the banks’ settlement accounts)
    4. Queuing mechanismsNormally, pending queues are managed within the sending banks’ own systems, and banks should not enter payments into the system unless they know that they have sufficient funds in their settlement accounts to enable those payments to settle; RTGS has also a “circles processing routine” (the “circle processing” selects chains of payments that cannot be settled in sequence but that can be settled simultaneously) that can be used in case of gridlock: in these circumstances the sending banks will be authorized to empty their own queued payments into the RTGS processor to enable the routine to operate
    5. Availability and pricing of intraday liquidityNo intraday overdrafts on settlement accounts; intraday liquidity will be available from the BoE through crediting of banks’ cash ratio deposits to settlement accounts each morning and, at any time during the day, through the intraday repo facility; this facility will normally mature automatically just before the RTGS closes; eligible assets, most of which are held in book-entry form, include government securities and treasury bills, eligible local authorities, and bank bills; these bought and sold at the same price (no interest charge); most repos take place at the beginning of the day
    6. Overnight creditBanks are expected to end the day with positive settlement account balances; occasionally, however, a bank may find itself in a short position that can only be funded by overnight BoE credit; BoE will retain sufficient assets from the bank’s intraday repo to cover the overdraft, and will impose a penalty charge; this secured overdraft will be unwound at the opening of the next business day (as such, these arrangements are separate from and do not influence the BoE’s daily operations in the money markets, where an engineered market shortage is relieved through the purchase of high-quality paper or through secured lending)
    7. Availability of information to participants“L” design; BoE settlement confirmation sent back to the sending bank, which then releases full payment instruction into the CHAPS network and on to the receiving bank; the receiving banks will not have access to the queued payments they are destined to receive and that will normally be within the sending banks’ internal systems; all banks have an inquiry link with the BoE to obtain information on its current balance and on the entries made to its settlement account (CHAPS payments and other transactions)
    8. Time of settlement finalityReal-time finality
    9. Operational connections with other domestic systemsFor the repo only, the RTGS processor has connections with the three securities settlement systems operated by the BoE; the three retail systems settle on a multilateral net basis through the RTGS settlement accounts; the multilateral net payment obligations arising from the securities settlement system, CGO and CMO, are also settled through RTGS toward the end of the day; domestic securities settlement systems will in the future be linked to the RTGS so as to achieve full DVP
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)There are no limits in RTGS; under the intraday repo facility, the BoE will purchase unlimited amounts of eligible assets from CHAPS member banks
    2. Use of collateralFor intraday liquidity, through repos with the BoE
    3. Loss-sharing agreementsNot applicable
    4. Unwinding clausesNot applicable
    5. ReliabilityThe RTGS processor has full backup capability, as does each bank’s computer interface with the CHAPS network
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the systemPeak day turnover through CHAPS is approximately £180 billion, compared with average daily turnover of £110-115 billion
    2. Projects under way and evolutionIn a strategy document on further reducing risks in payment and settlement systems, the BoE highlights the importance of RTGS in helping to achieve full DVP arrangements for domestic securities settlement, and in building the EU high-value cross-border payment system (TARGET); RTGS also provides a base from which mechanisms to counter Herstatt risk can be developed
    Table A22.United States
    System 1System 2
    I. General Organization
    1. Name of the systemFedwire, operational in various forms since 1914Clearing House Interbank Payments System (CHIPS), in 1970
    2. Owner/operator/regulatorFederal Reserve SystemOwner and operator: New York Clearing House Association (11 New York City banks); oversight by Federal Reserve System, Office of the Comptroller of the Currency, New York State Department of Banking, and the Federal Deposit Insurance Corporation
    3. Governing bodyFederal Reserve SystemClearing House Committee
    4. ParticipantsOver 10,000 banks participate18 settling participants; 95 nonsettling participants
    5. Membership rulesAll depository institutions and other entities that have reserve or clearing accounts at Federal Reserve Banks can participateMinimum requirements for participants: must be either commercial bank or an Edge Act corporation subsidiary or affiliate of a commercial bank and must have an office in New York City that is subject to regulation by a federal or state bank supervisor
    6. Degree of centralizationCentralized processing siteCentralized single node network (one connection per bank); one central processing site with separate backup site
    7. Limitations on valueNo limitation on size of transferEssentially large-value transfers; no size limits; average transaction is $6 million
    8. Type of settlementRTGSMultilateral net settlement
    9. Recovery of operating costsFull recovery of operating costs plus imputed cost of capital and other private sector costsFull cost recovery; minimum monthly assessment of $1,500; per message charge, October 1995 of 13, 18, 25, or 40 cents, depending on volume and the amount of manual intervention required by the receiving participant
    10. Legal and/or contractual frameworkGoverned by Federal Reserve Regulation J, Subpart B, consistent with Article 4Aof Uniform Commercial CodeStatutes: Article 4A of the New York Uniform Commercial Code; Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991; regulations: Federal Reserve Policy Statement on Payment System Risk; contracts: Settlement Agreement and Collateral Account Agreement with Federal Reserve Bank of New York; Participant Agreement and Pledge and Security Agreement among Participants; Rules: CHIPS Rules and Administrative Procedures Adopted by Clearing House Committee
    II. Clearing and Settlement Cycle
    1. Types of payment instrumentsCredit transfers, automated and some telephone instructionsCredit transfers: set format
    2. Number and value of transactions315,000 transactions daily, value about $947 billion (1996)About 190,000 originations per day; $1.2 trillion daily average
    3. Timetable of operations8:30 a.m. Eastern Standard Time (EST) opening hour; 6:00 p.m. EST closing (on-line third-party transfers); 6:30 p.m. closing (on-line all transfers)7:00 a.m. opening; 4:30 p.m. closed for payment messages; 4:35 p.m. CHIPS informs participants of their settlement positions; 5:1 5 p.m. all participants should have agreed to settle; 5:30 p.m. debit positions should be covered; 6:00 p.m. (or earlier) settlement is completed; times slightly different on selected days
    4. Queuing mechanismsNone; payments may be reversed by receiverFIFO; no cancellation of payment orders; no optimization routines
    5. Availability and pricing of intraday liquidityPricing of intraday credit, 10 basis points (effective daily rate) since April 1994; not collateralized; increased to 15 basis points in April 1995Intraday liquidity is provided by the participants themselves up to certain limits (caps)
    6. Overnight creditMoney market; discount window is available for collateralized borrowingNone
    7. Availability of information to participantsReal-time account balance and transfer advice information is available to participants if they have an on-line connectionReal-time information is available to participants on transactions executed, on net bilateral and multilateral positions
    8. Time of settlement finalityReal timeFollowing completion of settlement (end of day)
    9. Operational connections with other domestic systemsNoneNone
    III. Risk Control Measures
    1. Limits (bilateral and multilateral)Ex post monitoring of caps on intraday overdrafts for healthy domestic institutions; caps range from the lower of $10 million or 20 percent of capital to up to 1.50 times capital for the daily average over a two-week period and 2.25 times capital for a single day; higher caps must be established through a self-assessment process; problem institutions and certain classes of institutions are monitored real time against a zero or collateralized capBilateral credit limits set by participants vis-à-vis each other are enforced by the computer system; a multilateral cap is calculated as a percentage (5 percent—reduced to 4 percent by January 1997) of the sum of all of the bilateral caps for each participant and is also enforced by the system
    2. Use of collateralYes, but only in very limited circumstancesCollateral is required to cover a share of open positions—5 percent of the highest bilateral credit limit granted by the participant to any other single participant, or (beginning in 1995) $10 million, whichever is greater
    3. Loss-sharing agreementsNot applicableThere is a loss-sharing agreement, with losses being distributed according to the bilateral exposures of surviving participants relative to the net debit balance of the defaulting participant
    4. Unwinding clausesNot applicableOnly as a last resort
    5. ReliabilityMultiple levels of contingency backup including on-site and off-site redundancies; recovery time targeted for 30 minutesFor all participants, same-day recovery capabilities are required as well as a primary and backup computer site; a hot backup site is available for CHIPS, with recovery time of only a few minutes
    IV. Performance and Evolution
    1. Existing data (if any) on the performance of the system1995 percent uptime for Fedwire between 8:30.a.m. Eastern Time and closing equals 99.97 percentUptime performance in 1994 was 99.99 percent; system uptime was 100 percent for 20 consecutive months ending September 30, 1995
    2. Projects under way and evolutionOngoing risk reduction program; implementation of expanded CHIPS/SWIFT compatible format and longer operating hours by year-end 1997In 1996, risk reduction program will reduce the debit cap to 4 percent of all bilaterals (from 5 percent), require minimum commitment to loss-sharing arrangement (and collateral) of $10 million, and allow use of failed participant’s collateral to complete settlement; currently reviewing other proposals to reduce risks, including extended operating hours and multiple settlements
    GlossaryAutomated clearinghouse (ACH):

    An electronic clearing system in which payment orders are exchanged among financial institutions, primarily via magnetic media or telecommunication networks, and are handled by a data-processing center. See also clearing/clearance.

    Automated teller machine (ATM):

    Electromechanical device that permits authorized users, typically using machine-readable plastic cards, to withdraw cash from their accounts and access other services, such as balance inquiries, transfer of funds, or acceptance of deposits. ATMs may be operated either on-line with real-time access to an authorization database or off-line.

    Availability schedule:

    A schedule applied to accounting entries made as part of payment processing that specifies when financial institutions should release funds from the account of a payer and make funds available to the account of a payee.

    Batch:

    The transmission or processing of a group of payment orders (or securities transfer instruction or both), as a set, at discrete intervals.

    Bilateral net credit limit:

    The maximum net credit that a participant in a clearing arrangement is willing to have as a net credit position vis-à-vis another participant. See also caps.

    Bilateral net settlement system:

    A settlement system in which participants’ bilateral net settlement positions are settled between every bilateral combination of participants.

    Bilateral netting:

    An arrangement between two parties to net their bilateral obligations. The obligations covered by the arrangement may arise from financial contracts, transfers, or both. See netting, multilateral netting, net settlement.

    Book-entry system:

    An accounting system that permits the transfer of claims (for example, securities) without the physical movement of paper documents or certificates. See also dematerialization.

    Caps:

    For risk management purposes, the quantitative limits placed on the positions (debit or credit positions, which may be either net or gross) that participants in a funds or securities transfer system can incur during the business day. Caps may be set by participants on credit extended bilaterally to other participants in a system (for example, bilateral credit limits) or by the system operator or by the body governing the transfer system on the aggregate net debit a participant may incur on the system (for example, sender net debit limits). Sender net debit limits may be either collateralized or uncollateralized.

    Central bank credit (liquidity) facility:

    A standing credit facility that can be drawn upon by certain designated account holders (for example, banks) at the central bank. In some cases the facility can be used automatically at the initiative of the account holder, while in other cases the central bank may retain some degree of discretion. The loans typically take the form of advances or overdrafts on an account holder’s current account (which may be secured by a pledge of securities, also known as Lombard loans in some European countries), or of traditional rediscounting of bills.

    Central securities depository:

    A facility for holding securities that enables securities transactions to be processed by book entry. Physical securities may be immobilized by the depository or securities may be dematerialized (that is, so that they exist only as electronic records). In addition to safekeeping, a central securities depository may incorporate comparison, clearing, and settlement functions.

    Centralized queuing:

    See queuing.

    Check:

    A written order from one party (the drawer) to another (the drawee, normally a bank) requiring the drawee to pay a specified sum on demand to the drawer or to a third party specified by the drawer. Widely used for settling debts and withdrawing money from banks.

    Clearing/Clearance:

    Clearing is the process of transmitting, reconciling, and in some cases confirming payment orders or security transfer instructions prior to settlement, possibly including netting of instructions and the establishment of final positions for settlement. In the context of securities markets this process is often referred to as clearance. Sometimes the terms are used (imprecisely) to include settlement.

    Clearinghouse:

    A central location or central processing mechanism through which financial institutions agree to exchange payment instructions or other financial obligations (for example, securities). The institutions settle for items exchanged at a designated time based on the rules and procedures of the clearinghouse. In some cases, the clearinghouse may assume significant counterparty, financial, or risk management responsibilities for the clearing system. See clearing/clearance, clearing system.

    Clearing system:

    A set of procedures whereby financial institutions present (and exchange) data or documents relating to funds or securities transfers to other financial institutions at a single location (clearinghouse). The procedures often also include a mechanism for the calculation of participants’ bilateral or multilateral net positions (or both) with a view to facilitating the settlement of their obligations on a net or a net-net basis. See also netting.

    Confirmation:

    A particular connotation of this widely used term is the process whereby a market participant notifies its counterparties or customers of the details of a trade and, typically, allows them time to affirm or to question the trade.

    Correspondent banking:

    An arrangement under which one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services to those respondent banks. Such arrangements may also be known as agency relationships in some domestic contexts. In international banking, balances held for a foreign respondent bank may be used to settle foreign exchange transactions. Reciprocal correspondent banking relationships may involve the use of so-called nostro and vostro accounts to settle foreign exchange transactions.

    Counterparty:

    The opposite party to a financial transaction, such as a securities trade or swap agreement.

    Credit caps:

    See caps.

    Credit card:

    Card indicating that the holder has been granted a line of credit. It enables the cardholder to make purchases or draw cash up to a prearranged ceiling; the credit granted can be settled in full by the end of a specified period or can be settled in part, with the balance taken as extended credit. Interest is charged on the amount of any extended credit, and the cardholder is sometimes charged an annual fee. Merchants also usually pay a fee when their customers make payments by credit card.

    Credit card company:

    A company that owns the trademark of a particular credit card and may also provide a number of marketing, processing, or other services to members using the card services.

    Credit risk/exposure:

    The risk that a counterparty will not settle an obligation for fall value, either when due or at any time thereafter. In exchange-for-value systems, the risk is generally defined to include replacement cost risk and principal risk.

    Credit transfer:

    A payment order or possibly a sequence of payment orders made for the purpose of placing funds at the disposal of the beneficiary. Both the payment instructions and the funds described therein move from the bank of the payer/originator to the bank of the beneficiary, possibly via several other banks as intermediaries or via more than one credit transfer system.

    Credit transfer system (giro system):

    A system through which payment instructions and the funds described therein may be transmitted for the purpose of effecting credit transfers.

    Cross-currency settlement risk (Herstatt risk):

    See principal risk.

    Cross-system net debit cap:

    The maximum cap that a participant in a clearing arrangement can have with respect to other participants across all networks. See also caps.

    Custody:

    The safekeeping and administration of securities and financial instruments on behalf of others.

    Daylight credit (daylight overdraft, daylight exposure, intraday credit):

    Credit extended for a period of less than one business day; in a credit transfer system with end-of-day final settlement, daylight credit is tacitly extended by a receiving institution if it accepts and acts on a payment order even though it will not receive final funds until the end of the business day.

    Debit caps:

    See caps.

    Debit card:

    Card enabling the holder to have purchases directly charged to funds on account at a deposit-taking institution (may sometimes be combined with another function—for example, a cash card or check guarantee card).

    Debit transfer system (debit collection system):

    A funds transfer system in which debit collection orders made or authorized by the payer move from the bank of the payee to the bank of the payer and result in a charge (debit) to the account of the payer; for example, check-based systems are typical debit transfer systems.

    Decentralized queuing:

    See queuing.

    Default:

    Failure to complete a funds or securities transfer according to its terms for reasons that are not technical or temporary, usually as a result of bankruptcy. Default is usually distinguished from a “failed transaction.”

    Delayed net settlement system (DNS):

    A net settlement system in which the settlement is delayed. See net settlement system.

    Delivery:

    Final transfer of a security or financial instrument.

    Delivery-versus-payment system (DVP, delivery-against-payment):

    A mechanism in an exchange-for-value settlement that ensures that the final transfer of one asset occurs if and only if the final transfer of (an)other asset(s) occurs. Assets could include monetary assets (such as foreign exchange), securities, or other financial instruments. See also final transfer.

    Dematerialization:

    The elimination of physical certificates or documents of title that represent ownership of securities so that securities exist only as accounting records.

    Direct debit:

    A preauthorized debit on the payer’s bank account initiated by the payee.

    Direct participant/member:

    The term generally denotes participants in a funds or securities transfer system that directly exchange transfer orders with other participants in the system. In some systems direct participants also exchange orders on behalf of indirect participants. Depending on the system, direct participants may or may not also be settling participants. In the European Union context, this term has a specific meaning: it refers to participants in a transfer system that are responsible to the settlement institution (or to all other participants) for the settlement of their own payments, those of their customers, and those of indirect participants on whose behalf they are settling. See participant/member, indirect participant/member, settling participant/member.

    Draft:

    A written order from one party (the drawer) to another (the drawee) to pay to a party identified on the order (payee) or to bearer a specified sum, either on demand (sight draft) or on a specified date (time draft). See also check.

    EFTPOS:

    See point of sale (POS).

    Electronic data interchange (EDI):

    The electronic exchange between commercial entities (in some cases also public administrations), in a standard format, of data relating to a number of message categories, such as orders, invoices, customs documents, remittance advices, and payments. EDI messages are sent through public data transmission networks or banking system channels. Any movement of funds initiated by EDI is reflected in payment instructions flowing through the banking system. EDIFACT, a United Nations body, has established standards for electronic data interchange.

    Failed transaction:

    A transaction (for example, a funds or securities transfer) that does not settle on time, usually for technical or temporary reasons.

    Final (finality):

    Irrevocable and unconditional.

    Final settlement:

    Settlement that is irrevocable and unconditional.

    Final transfer:

    An irrevocable and unconditional transfer that effects a discharge of the obligation to make the transfer. The terms “delivery” and “payment” are each defined to include a final transfer.

    Float:

    The effect of a time difference between the crediting of a payee’s account and the debiting of a payer’s account as a result of a payment transaction. There can be several types of float, depending on whether it occurs between commercial banks and their customers (customer float) or between the central bank and commercial banks (central bank float, interbank float, or bank float), and on the nature of both the payment instrument and the clearing process.

    Giro system:

    See credit transfer system.

    Gridlock:

    A situation that can arise in a funds or securities transfer system in which the failure of some transfer instructions to be executed (because the necessary funds or securities balances are unavailable) prevents a substantial number of other instructions from other participants from being executed. See also failed transaction, queuing, systemic risk.

    Gross settlement system:

    A transfer system in which the settlement of funds or securities transfers occurs individually on an order-by-order basis according to the rules and procedures of the system (that is, without netting debits against credits). See real-time gross settlement, net settlement system.

    Haircut:

    The difference between the market value of a security and its collateral value. Haircuts are taken by a lender of funds in order to protect the lender, should the need arise to liquidate the collateral, from losses owing to declines in the market value of the security.

    Herstatt risk:

    See principal risk.

    Indirect participant/member:

    Refers to a funds or securities transfer system in which there is a tiering arrangement. Indirect participants are distinguished from direct participants by their inability to perform some of the system activities (for example, input of transfer orders, settlement) performed by direct participants. Indirect participants, therefore, require the services of direct participants to perform those activities on their behalf. In the European Union context, the term refers more specifically to participants in a transfer system that are responsible only to their direct participants for settling the payments input to the system. See direct participant/member, settling participant/member.

    Interbank funds transfer system (IFTS):

    A funds transfer system in which most (or all) direct participants are financial institutions, particularly banks and other credit institutions.

    Intraday credit:

    See daylight credit.

    Irrevocable and unconditional transfer:

    A transfer that cannot be revoked by the transferor and is unconditional.

    Issuer:

    The entity that is obligated on a security or other financial instrument—for example, a corporation or government having the authority to issue and sell a security, or a bank that approves a letter of credit. Sometimes used to refer to a financial institution that issues credit or debit cards.

    Lamfalussy standards:

    Six minimum standards for the design and operation of cross-border and multicurrency netting and settlement schemes, which apply equally to domestic interbank net settlement systems. The standards were set out in a report compiled by a BIS committee chaired by M.A. Lamfalussy. See Table 1 (in Chapter 1) for details.

    Large-value funds transfer system (LVTS):

    Interbank funds transfer system through which large-value and high-priority funds transfers are made between participants in the system for their own account or on behalf of their customers. Although as a rule no minimum value is set for the payments they carry, the average size of payments through such systems is relatively large. Large-value funds transfer systems are sometimes called wholesale funds transfer systems.

    Liquidity risk:

    The risk that a counterparty (or participant in a settlement system) will not settle an obligation for full value when due. Liquidity risk does not imply that a counterparty or participant is insolvent, since it may be able to settle the required debit obligations at some unspecified time thereafter.

    Loss-sharing rule (loss-sharing agreement):

    An agreement between participants in a transfer system or clearinghouse arrangement regarding the allocation of any loss arising when one or more participants fail to fulfill their obligation: the arrangement stipulates how the loss will be shared among the parties concerned in the event that the agreement is activated.

    Magnetic ink character recognition (MICR):

    A technique, using special MICR machine-readable characters, by which documents (checks, credit transfers, direct debits) are read by machines for electronic processing. See optical character recognition (OCR).

    Multilateral net settlement position:

    The sum of the value of all the transfers a participant in a net settlement system has received during a certain period of time less the value of the transfers made by the participant to all other participants. If the sum is positive, the participant is in a multilateral net credit position; if the sum is negative, the participant is in a multilateral net debit position.

    Multilateral net settlement system:

    A settlement system in which each settling participant settles (typically by means of a single payment or receipt) the multilateral net settlement position that results from the transfers made and received by it, for its own account and on behalf of its customers or nonsettling participants for which it is acting. See multilateral netting, multilateral net settlement position, settling participant/member, direct participant/member.

    Multilateral netting:

    An arrangement among three or more parties to net their obligations. The obligations covered by the arrangement may arise from financial contracts, transfers, or both. The multilateral netting of payment obligations normally takes place in the context of a multilateral net settlement system. See bilateral netting, multilateral net settlement position, multilateral net settlement system.

    National payments council:

    A council, usually comprising the central bank, the commercial banks, and other financial and nonfinancial organizations that actively participate in the payment system. The council discusses strategies and guidelines for the development of the payment system.

    Net credit or debit position:

    A participant’s net credit or net debit position in a netting system is the sum of the value of all the transfers it has received up to a particular point in time less the value of all transfers it has sent. If the difference is positive, the participant is in a net credit position; if the difference is negative, the participant is in a net debit position. The net credit or net debit position at settlement time is called the net settlement position. These net positions may be calculated on a bilateral or multilateral basis.

    Net debit cap:

    See caps, net credit or debit position.

    Net settlement:

    The settlement of a number of obligations or transfers between or among counterparties on a net basis. See netting.

    Net settlement system:

    A system to effect net settlement.

    Netting:

    An agreed offsetting of positions or obligations by trading partners or participants. The netting reduces a large number of individual positions or obligations to a smaller number of obligations or positions. Netting may take several forms that have varying degrees of legal enforceability in the event of default by one of the parties. See also bilateral and multilateral netting, novation, substitution.

    Novation:

    Satisfaction and discharge of existing contractual obligations by means of their replacements by new obligations (whose effect, for example, is to replace gross-with net-payment obligations). The parties to the new obligations may be the same as parties to the existing obligations, or, in the context of some clearinghouse arrangements, there may additionally be substitution of parties. See substitution.

    Off-line:

    In the context of payment and settlement systems, the term may refer to the transmission of transfer instructions by users—through such means as voice, written, or telefaxed instructions—that must subsequently be input into a transfer processing system. The term may also refer to the storage of data by the transfer processing system on media such as magnetic tape or disk such that the user may not have direct and immediate access to the data. See on-line.

    On-line:

    In the context of payment and settlement systems, the term may refer to the transmission of transfer instructions by users, through such electronic means as computer-to-computer interfaces or electronic terminals, that are entered into a transfer processing system by automated means. The term may also refer to the storage of data by the transfer processing system on a computer database such that the user has direct access to the data (frequently real time) through input/output devices such as terminals. See off-line.

    Optical character recognition (OCR):

    A technique, using special OCR machine-readable characters, by which documents (checks, credit transfers, direct debits) are read by machines for electronic processing. See magnetic ink character recognition (MICR).

    Overnight money (day-to-day money):

    A loan with a maturity of one business day.

    Paperless credit

    transfers: Credit transfers that do not involve the exchange of paper documents between banks. Other credit transfers are called paper-based.

    Participant/member:

    A party that participates in a transfer system. This generic term refers to an institution that is identified by a transfer system (for example, by a bank identification number) and is allowed to send payment orders directly to the system or that is directly bound by the rules governing the transfer system. See direct participant/member, indirect participant/member.

    Payment:

    The payer’s transfer of a monetary claim on a party acceptable to the payee. Typically, claims take the form of banknotes or deposit balances held at a financial institution or at a central bank.

    Payment lag:

    The timelag between the initiation of the payment order and its final settlement.

    Payment order (payment instruction):

    An order or message requesting the transfer of funds (in the form of a monetary claim on a party) to the order of the payee. The order may relate either to a credit transfer or to a debit transfer.

    Payment system:

    A payment system consists of a set of instruments, banking procedures, and, typically, interbank funds transfer systems that ensure the circulation of money.

    PIN (personal identification number):

    A numeric code that the cardholder may need to quote for verification of identity. In electronic transactions, it is seen as the equivalent of a signature.

    Point of sale (POS):

    This term refers to the use of payment cards at a retail location (point of sale). The payment information is captured either by paper vouchers or by electronic terminals, which, in some cases, are designed also to transmit the information. Where this is so, the arrangement may be referred to as “electronic funds transfer at the point of sale” (EFTPOS).

    Position netting:

    The netting of instructions in respect of obligations between two or more parties that neither satisfies nor discharges those original individual obligations. Also referred to as payment netting in the case of payment instructions.

    Prepaid card (payment card):

    A card “loaded” with a given value, paid for in advance.

    Principal risk:

    The credit risk that a party will lose the full value involved in a transaction. In the settlement process, this term is typically associated with exchange-for-value transactions when there is a lag between the final settlement of the various legs of a transaction (that is, the absence of delivery versus payment). Principal risk that arises from the settlement of foreign exchange transactions is sometimes called cross-currency settlement risk or Herstatt risk. See credit risk.

    Provisional transfer:

    A conditional transfer in which one or more parties retain the right by law or agreement to rescind the transfer (for example, when checks are deposited to a payee’s account, the checks may still be dishonored, and the payee’s bank may rescind the deposit).

    Queuing:

    An arrangement, generally used in RTGS systems, whereby transfer orders are held until sufficient cover is available. In some cases, cover may include unused credit lines or available collateral. See also caps. Queuing arrangements can be divided into two types: centralized, where the queue is handled by the payment system’s central processor; and decentralized, where queues are handled by the individual banks themselves.

    Real-time gross settlement (RTGS):

    A gross-settlement system in which processing and settlement take place in real time (continuously).

    Real-time transmission, processing, or settlement:

    The transmission, processing, or settlement of a funds or securities transfer instruction on an individual basis at the time it is initiated.

    Receiver finality:

    Analytical rather than operational or legal term used to describe the point at which an unconditional obligation arises on the part of the receiving participant in a transfer system to make final funds available to its beneficiary customer on the value date. See final settlement.

    Registration:

    The listing of ownership of securities in the records of the issuer of its transfer agent/registrar.

    Remote participant:

    A participant in a transfer system that has neither its head office nor any of its branches located in the country where the transfer system is based.

    Remote payment:

    Payment carried out through the sending of payment orders or payment instruments (for example, by mail), in contrast to face-to-face payment.

    Replacement cost risk (market risk, price risk):

    The risk that a counterparty to an outstanding transaction for completion at a future date will fail to perform on the settlement date. This failure may leave the solvent party with an unhedged or open market position or deny the solvent party unrealized gains on the position. The resulting exposure is the cost of replacing, at current market prices, the original transaction. See also credit risk.

    Respondent:

    See correspondent banking.

    Retailer’s card:

    A card issued by nonbanking institutions, to be used in specified stores. The holder of the card has usually been granted a line of credit.

    Retail transfer system:

    Interbank funds transfer system that handles a large volume of payments of relatively low value in such forms as checks, credit transfers, direct debits, ATM transactions, and EFTPOS.

    Same-day funds:

    Money balances that the recipient has a right to transfer or withdraw from an account on the day of receipt.

    Securities depository (book-entry system):

    See central securities depository.

    Sender finality:

    Analytical rather than operational or legal term used to describe the point at which an unconditional obligation arises on the part of the initiating participant in a funds transfer system to make final payment to the receiving participant on the value date. See final settlement.

    Settlement:

    An act that discharges obligations in respect of funds or securities transfers between two or more parties. See gross and net settlement system, net settlement, final settlement.

    Settlement agent:

    An institution that manages the settlement process (for example, the determination of settlement positions, monitoring the exchange of payments, and the like) for transfer systems or other arrangements that require settlement. See final settlement, settlement, settlement institution(s), multilateral net settlement system.

    Settlement finality:

    Set final settlement.

    Settlement institution(s):

    The institution(s) across whose books transfers between participants take place in order to achieve settlement within a settlement system. See settling participant/member, settlement agent, multilateral net settlement system, bilateral net settlement system.

    Settlement lag:

    In an exchange-for-value process, the timelag between entering into a trade/bargain and its discharge by the final exchange of a financial asset for payment. See payment lag.

    Settling participant/member:

    In some countries, a settling participant in a funds or securities transfer system delivers and receives funds or securities to or from other settling participants through one or more accounts at the settlement institution for the purpose of settling funds or securities transfers for the system. Other participants require the services of a settling participant in order to settle their positions. In the European Union, direct participants are by definition also settling participants. See also direct participant/member.

    Settlement risk:

    General term used to designate the risk that settlement in a transfer system will not take place as expected. This risk may comprise both credit and liquidity risk.

    Settlement system:

    A system in which settlement takes place.

    Smart card:

    A plastic transaction card that has a microelectronic chip embedded in it that allows the card to have a memory and computational abilities.

    Substitution:

    The substitution of one party for another in respect of an obligation. In a netting and settlement context the term typically refers to the process of amending a contract between two parties so that a third party is interposed as counterparty to each of the two parties, and the original contract between the two parties is satisfied and discharged. See novation.

    SWIFT (Society for Worldwide Interbank Financial Telecommunication):

    A cooperative organization created and owned by banks that operates a network that facilitates the exchange of payment and other financial messages between financial institutions (including broker-dealers and securities companies) throughout the world. A SWIFT payment message is an instruction to transfer funds; the exchange of funds (settlement) subsequently takes place over a payment system or through correspondent banking relationships.

    Systemic risk:

    The risk that the failure of one participant in a transfer system, or in financial markets generally, to meet its required obligations will cause other participants or financial institutions to be unable to meet their obligations (including settlement obligations in a transfer system) when due. Such a failure may cause significant liquidity or credit problems and, as a result, might threaten the stability of financial markets.

    Transfer:

    Operationally, the sending (or movement) of funds or securities or of a right relating to funds or securities from one party to another party by (1) conveyance of physical instruments or money; (2) accounting entries on the books of a financial intermediary; or (3) accounting entries processed through a funds or securities transfer system. The act of transfer affects the legal rights of the transferor, transferee, and possibly third parties in relation to the money balance, security, or other financial instrument being transferred.

    Transfer system:

    A generic term covering interbank funds transfer systems and exchange-for-value systems.

    Truncation:

    A procedure in which the physical movement of paper payment instruments (for example, paid checks or credit transfers) within a bank, between banks, or between a bank and its customer is curtailed or eliminated—being replaced, in whole or in part, by electronic records for further processing and transmission.

    Unwinding (settlement unwind):

    A procedure followed in certain clearing and settlement systems in which transfers of securities or funds are settled on a net basis, at the end of the processing cycle, with all transfers provisional until all participants have discharged their settlement obligations. If a participant fails to settle, some or all of the provisional transfers involving that participant are deleted from the system, and the settlement obligations from the remaining transfers are then recalculated. Such a procedure has the effect of transferring liquidity pressures and possibly losses from the failure to settle to other participants and may, in the extreme, result in significant and unpredictable systemic risks.

    Wholesale funds transfer system:

    See large-value funds transfer system.

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    In 1974 a German Bank, Bankhaus Herstatt, which was very active in the foreign exchange market, was closed by the German banking supervisory authority. At the time of the closure, several of Herstatt’s counterparts had made irrevocable payments in deutsche mark in its favor, while the United States’ dollar payments had not yet been received by the United States clearing system—Clearing House Interbank Payments System (CHIPS). Since Herstatt’s correspondent banks suspended outgoing U.S. dollar payments from Herstatt’s account at the same time as the closure in Frankfurt, several banks incurred losses. This risk of loss from nonsynchronous settlement of funds in two cross-border systems is now called Herstatt risk.

    The Bank of New York, a major clearing bank in the United States’ payment system, experienced a computer breakdown on November 21, 1985, so that it could settle only bought securities but not sold securities. To ensure settlement, the Federal Reserve Bank had to make an overnight loan of $22.6 billion from the discount window, collateralized by $36 billion in securities.

    Another aspect of this cooperation to reduce the overall risk of the financial system is the setting for commercial banks of minimum prudential regulation, including the introduction of risk-weighted capital requirements to mitigate credit risk (Basle Capital Accord of 1988, amended in 1996 to incorporate market risks), and to limit large exposures; see BIS (1996a).

    CHIPS is a private wire funds transfer network associated with the New York Clearing House. It started in 1970 to transfer interbank balances involving international transfers of dollars on the books of the New York Clearing House Association banks. Currently, about half of its transfers deal with international dollar transfers by United States depository institutions. See Table A22 of the Appendix for important features of this system.

    TARGET, or Trans-European Automated Real-Time Gross Settlement Express Transfer, is a system that will link the national RTGS systems of the European Union countries.

    This subsection is based on European Monetary Institute (1995).

    The banks using ECHO include ABN AMRO Bank, Banca Commerciale Italian a, Banca Nazionale del Lavoro, Banque Nationale de Paris, Barclays Bank, Commerzbank, Credito Italiano, Generale Bank, ING Bank, Midland Bank, and Standard Chartered Bank (“Payments Innovations and Developments,” Payment System Worldwide, 1995).

    ECHO clears Australian dollars, Belgian frances, British pounds, deutsche mark, French francs, Hong Kong dollars, Italian lira, Netherlands guilders, Swedish krona, Swiss francs, and U.S. dollars.

    The bank must be an OECD incorporated bank or regulated investment bank, have a Tier 1 capital of more than $900 million or equivalent, and have a credit rating of BBB+ or better.

    A Central Securities Depository (CSD) is a “facility for holding securities which enables securities transactions to be processed by means of book entries. Physical securities may be immobilized by the depository or securities may be dematerialized (so that they exist only as electronic records).” An International Central Securities Depository (ICSD) is a “central securities depository that settles trades in international securities and in various domestic securities, usually through direct or indirect (through local agents) links to local CSDs.” See BIS (1995).

    Preexisting arrangements that have been terminated include the Caribbean Community Multilateral Clearing Facility (CMCF)—among 13 Caribbean countries—terminated in 1983, and the Central American Clearing House (CACH) and the Central American Payments System (SCP)—among 5 Central American countries—terminated in 1992. Also noteworthy are the Multilateral Clearing System of the former Council for Mutual Economic Assistance (CMEA), established in 1963 and terminated in 1991, and the Regional Cooperation for Development (RCD) Union for Multilateral Payments Arrangements, established in 1967 between the Islamic Republic of Iran, Pakistan, and Turkey and terminated in 1990.

    The current members of ECOWAS are Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, and Togo.

    The signatories to the treaty were Burundi, Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, Gabon, Rwanda, Sāo Tomé and Principe, and Zaïre (the official name of Zaïre was changed to Democratic Republic of the Congo on May 7, 1997).

    There are 22 members: Angola, Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Somalia, Sudan, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe. Of these, there were 10 original members: Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Somalia, Swaziland, Uganda, Zambia, and Zimbabwe.

    In reality, the clearinghouse arrangement currently operating in the ECCAS is that between the BEAC countries and the Democratic Republic of the Congo (formerly Zaïre) and is governed by an agreement that entered into effect in May 1981 between the BEAC and the Bank of Zaïre.

    The most important and well-known monetary unions in sub-Saharan Africa are the two in the CFA franc zone—the countries of the West African Monetary Union (member states Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal, and Togo), with the Banque Centrale des États de l’Afrique de l’Ouest (BCEAO) as their central bank, and the countries of the Central African Economic and Monetary Community (member states Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon), with the Banque des États de l’Afrique Central (BEAC) as their central bank. These monetary unions not only have a common central bank each but also have the same common currency—the CFA franc—which has a parity fixed against the French franc (since 1948); the level of this parity stayed the same from 1948 until it was changed (devalued) in January 1994.

    LIMEAN is the London intermarket mean rate, which is the mean of the LIBID (London interbank bid rate) and the LIBOR (London interbank offered rate).

    These instruments are letters of credit, payment orders, nominative drafts, documentary credits, bills of exchange corresponding to commercial transactions endorsed by authorized institutions, and promissory notes derived from commercial transactions issued or endorsed by authorized institutions.

    For a more detailed discussion of the nature and causes of different types of float, see Veale and Price (1994).

    For example, one suggestion in the United States has been that bank float needs to be subtracted from demand deposits a second time to measure M1 appropriately; see Liang (1986).

    For example, in their work on central bank float in Russia over 1992/93, Sundararajan and Sensenbrenner (1994) note that measuring strictly payment-related float required adjusting data on incompletely processed payments for interenterprise arrears (effectively trade credit) measured through the payment system and for the difference in timing between accounting and payment of government deposits between the central bank branches and the head office.

    Sundararajan and Sensen brenner (1994) found some evidence that this occurred in Russia.

    For a more general discussion of the relationship between financial sector soundness issues and monetary management, see Guitián (1993) and Lindgren, Garcia, and Saal (1996).

    For the simulations, see Humphrey (1986b, pp. 97-120) and Angelini, Maresca, and Russo (1996).

    Three basic forms of finality can be distinguished: sender, receiver, and settlement finality; see the Glossary and Humphrey (1986a).

    See Mengle (1990) for a discussion of assignment of risks that raises interesting economic efficiency issues not elaborated in this chapter. Mengle has argued that the effectiveness of such rules will depend crucially on two assumptions. First, the system participants must have sufficiently accurate information regarding the risks they face. Second, participants must actually be required to bear their assigned costs if a settlement failure occurs. In other words, participants must not have a tendency to systematically underestimate risks of settlement failure and also must not expect to be bailed out by some ultimate guarantor such as the central bank. Otherwise, the assignment rule will not have a significant effect on participants’ behavior toward risk in the system. In particular, there will be no risk-reduction effect of the purportedly efficient rule.

    CHAPS started operations in 1984 as an electronic sterling credit transfer service between the settlement members of the CHAPS and Town Clearing Company Limited, a company responsible for same-day clearing of large-value items. See “Payment Systems in the United Kingdom” in BIS (1993a, pp. 384-430). See also the Appendix, Table A21, for important features of this system.

    For an introduction to risk management and other aspects of CHIPS, see CHIPS (1990) and Hook (1994). CHIPS has continued to refine its risk management procedures (see Richards (1995)).

    For a brief introduction to FEYCS, see “Payment Systems in Japan,” in BIS (1993a), pp. 247-88.

    For a formal analysis of the main economic costs and benefits of accelerated settlement, see Angelini and Giannini (1994).

    The rapidity with which this turnover ratio increased in the United States can, for instance, be seen from the evidence that the ratio of average daily payments through the major payment networks (for both wire transfers and checks) to average daily reserve balances maintained with the Federal Reserve Banks rose from 0.9 in 1960 to 30 in 1985; see Mengle, Humphrey, and Summers (1987).

    Some form of queuing may be the required trade-off for the removal of systemic risk under an RTGS system, when the central bank is not prepared to take on the credit risk of substantial intraday lending to banks.

    While monetary policy considerations may well affect the desirable details of a payment initiative, this certainly does not mean that payment systems design should automatically be subordinated to continuation of the current monetary policy operating regime. This point is stressed in Angell (1993).

    David Humphrey has argued that, with free daylight overdrafts, some banks were able to resell at least part to brokers/dealers for a fee, typically 100 basis points on an annual basis; see David B. Humphrey (1986a).

    “The average daily overdraft is computed by dividing the sum of negative account balances at the end of each minute of the scheduled Fedwire opera ting day by the number of minutes in the operating day. A deductible equal to 10 percent of the depository institution’s qualifying capital is then subtracted, and the fee is applied to the excess” (Federal Reserve Bank of New York, 1995, p. 33).

    See Federal Reserve Bank of New York (1995, p. 34). See also Richards (1995) for discussion of some of the changes in market practices that have accompanied the pricing.

    See Richards (1995). Earlier studies had indicated the organizational practices (outside of the particular payments clearing and settlement system) that were expected to change with pricing, apart from rearranging timing of payments to synchronize better sends and receipts (including delayed sends) and using own funds to a greater extent than before. These included: (1) rollovers; (2) continuing contracts; (3) use of term funds; (4) intraday funding; and (5) netting by novation (see Mengle, Humphrey, and Summers (1987), and Humphrey (1992)). As to rollovers, the same amount of funds borrowed (especially overnight) gets renegotiated with the same seller and the old funds are simply re-lent; hence, only the initial borrowing and the final repayment move over the wire network. With continuing contracts, different amounts of funds are renegotiated with the same sellers. Only the net change in the position is sent over the wire; the value of payments drops, and so does the likely need for overdrafts. Greater use of term funds would involve, inter alia, substituting longer-term borrowings for overnight funds; the average daily value of funds transmitted over the wire network would fall and, ceteris paribus, so would intraday overdrafts. Intraday funding refers to the selling of excess funds by one participant to another; in essence this would be part of an intraday market for funds. Netting by novation involves netting gross bilateral payment obligations and replacing the old contracts with new contracts in which the gross exposures are replaced by the net positions.

    For instance, in the United States the rate on day loans used by brokers/dealers to finance securities purchases prior to delivery and payment by customers was thought by some as a relevant rate to use to approximate a daylight overdraft price. Naturally, it was recognized that this rate should be adjusted for the factors mentioned above; see Mengle, Humphrey, and Summers (1987). In the event, a far more modest fee was charged when the Fed introduced its fee than what would have been produced by such an exercise.

    Yet another interesting dimension of this issue is how a move to intraday settlement arrangements, and specifically daylight overdrafts, may affect the interpretation of concepts of broader “money.” As noted by Ettin (1988), focusing on money balances at the end of the day—those quantitatively limited by reserve balances and reserve requirements in the United States—ignores the intraday money that is used for transactions. Banks create such intraday money when they let customers overdraw their accounts during the day, in the same way that the Federal Reserve does for banks.

    See Richards (1995). According to Richards, traders reportedly facilitated faster back-office processing by pricing the securities to be used as collateral at the time of the trade, rather than later in the morning as had been the practice. Dealers also completed settlement of many secondary market transactions in government securities earlier in the day. These activities, inter alia, reduced securities-related overdrafts.

    Even when the case for central bank regulation is strong, there is a view that the regulation of expo-sure in interbank funds transfer systems should proceed along a path different from what are essentially ad hoc quantitative limits on individual banks. Strictly speaking, of course, banks could still effectively engage in secondary reallocations of limits in light of the fungibility of the resources. But the initial allocation would still reflect the direct exposures that the banks want vis-à-vis each other. One alternative approach begins from the view that debit caps and credit limits involve the creation of intraday credit that is essentially inside money. The suggestion is that tradable electronic certificates be issued, only by the central bank, via an electronic funds transfer system with a netting arrangement (such as CHIPS). For instance, the certificates could be called “electronic intraday cash creation rights” (EICCR); see Roberds (1993). The EICCR would be tradable. The advantages of such an approach are twofold: the central bank would worry only about the overall credit/money created by the daylight overdrafts; and trading of EICCR would encourage efficiency in intraday credit allocation no matter what may be the initial distribution of EICCR among the agents.

    An excellent introduction to cost-benefit analysis is Mishan (1988).

    See, for example, the case of Russia in Chapter 10.

    Horizontal mergers involve merging at the same stage of the production process. Vertical mergers involve merging of organizations at different stages of the production process. Conglomerate mergers involve merging of organizations across different markets—with no vertical or horizontal merging involved.

    For a flavor as it relates to the United States, see, for example, Edwards (1988).

    See, for example, United States (1989), Uniform Commercial Code, Comment 1 to Section 3-418 (prior to 1990 revision). Although the wording of Section 3-418 was changed as part of the 1990 revisions, the allocation of responsibility for authentication was not substantively changed.

    The convention also included provisions resolving conflicts of laws regarding checks.

    United States (1987), The Expedited Funds Availability Act—Title 12, United States Code, Section 4001 et seq.

    United States (1987), The Expedited Funds Availability Act—Title 12, United States Code, Section 4002(a)(l).

    United States (1989), Uniform Commercial Code, Article 4A.

    The United Nations in 1989 adopted a convention on international bills of exchange and promissory notes, but no country has enacted this law.

    This chapter also draws heavily on BIS (1994a).

    The remaining government-owned bank has subsequently been privatized.

    The special role and authorization of the remaining short-term money market dealers was terminated by the RBA in August 1996. For monetary policy purposes, the RBA now deals with all members of the Reserve Bank Information and Transfer System (RITS) (see under “Clearing and Settlement Systems,” below).

    This section is based largely on material in BIS (1994a), pp. 1-8.

    This section draws heavily on Procter (1993).

    Thus, if a bank with branches in Australia fails, depositors in Australia have first claim against any of that bank’s assets in Australia.

    For details, see “Clearing and Settlement Systems,” below, and the final section of the chapter.

    Much of the material in this section is derived from BIS (1994a), pp. 8-13.

    Data on the volume and value of cashless transactions exclude certain transactions, including those made through ATMs.

    The government has announced a revision to the Cheques and Payment Orders Act 1986 to permit credit unions, building societies, and SSPs to issue checks. The RBA has stated that, subject to appropriate prudential arrangements, it will permit SSPs to use their settlement accounts to settle the obligations of credit unions and building societies arising in the check-clearing process.

    This section is largely based on material in BIS (1994a), pp. 13-20.

    The system operates very similarly to the way in which the Clearing House Automated Payment System (CHAPS) in the United Kingdom used to operate before the introduction of net debit caps or RTGS.

    This choice, as well as the reasons for moving directly to RTGS in Australia, is discussed in Reserve Bank of Australia (1995b), p. 1.

    For more details on PRESS and PDS, see BIS (1994a), pp. 19-21.

    The RBA is developing an intraday repurchase facility. It will pay interest on end-of-day balances in ESAs.

    The statistics used as a basis for the comments on cashless payment instruments cover both operations carried out through official exchange circuits (the Paris Clearing House, the provincial clearinghouses, the regional truncated check exchange centers, the BdF, and the Interbank Teleclearing System) and those carried out through other circuits (instruments exchanged directly between networks or within the same group, as well as between accounts at the same institution), regardless of whether they have been issued by banks or other account-holding institutions.

    For checks, face-to-face payments and remote payments are estimated to account for 3.3 billion and 1.6 billion operations respectively.

    Although French bank cards are debit cards, banks may grant credit facilities to their customers on the accounts to which the bank cards are attached.

    The SIT can also handle nonaccounting transactions, such as administrative operations for bank cards, and payment instrument incident reports.

    Licensing requirements were also tightened, and in 1993 only one new private bank was issued a license.

    The state-owned banks that have been privatized are also covered.

    Under the monobanking system, draft orders and demands for payments were major payment instruments used by enterprises and government. However, both instruments were eliminated in 1 989, the former because they unduly favored the payee, and the latter because they were too labor-intensive.

    In the scheme, Bank Handlowo Kredytowy (BHK) of Katowice issued certified checks to Art-B against an account with no funds in it. Art-B presented the checks at another bank, say. Bank X, which immediately credited Art-B’s account, even though the check had not yet been presented. Float credit was extended by the NBP to Bank X pending the check’s being cleared. This enabled Art-B to receive, and then steal, a large amount of credit from the banking system. BHK-Katowice was ultimately closed, but all depositors were paid in full.

    The NBP maintains several types of accounts for each bank. All are accessible through SORB.

    The official rate announced on a daily basis is quoted by the CBR for valuation purposes only. Until May 17, 1996, the CBR quoted an offered rate twice a week based upon the closing rates in the Moscow Interbank Currency Exchange (MICEX).

    The payment demand order allowed the provider of goods or services to request payment, by sending a form directly to the payer’s bank, which in turn initiated a payment order.

    Intrabank networks may handle a significant share of payments, since some of the largest banks specialize in handling payments for specific sectors of the economy.

    It is expected that 18 banks (14 local and 4 foreign) will be ready to participate from the beginning, 2 banks will be ready later on, while 11 banks (1 small local and 10 foreign) will not join.

    The exchange rate is about B 25 per U.S. dollar. Through September 1995, there was no fee for interbank transactions. Third-party transactions began at the end of October 1995.

    In the area of legislation, recent examples include the Monetary Control Act of 1980 (MCA), the Expedited Funds Availability Act (United States, 1987), and the Riegle-Neal Interstate Banking and Branching Efficiency Act, enacted at the federal level, as well as legislation enacted at the state level, including regional pacts allowing interstate branching and changes to the Uniform Commercial Code (United States, 1989), which affect the payments system more specifically (see the next section).

    Data on bond volumes are from Board of Governors of the Federal Reserve System (1996).

    From International Finance Corporation (1995), p. 15, based on the combined capitalization of the NASDAQ and New York Stock Exchanges.

    International standards are also used in payment processing in the United States, including standards established for Electronic Data Interchange (EDI) by the United Nations/Electronic Data Interchange for Administration, Commerce, and Transportation (UN/EDIFACT), and standards for numbering securities, such as the CUSIP International Numbering System (CINS) and the International Securities Identification Numbering (ISIN) system.

    U.C.C. Article 4A is structured around five basic elements: (1) a scope rule to differentiate the parties and payment instructions included in the law from those that are not; (2) a trigger event to indicate the moment when the rights and obligations of a party to a funds transfer are manifest; (3) a receiver finality rule to establish when credit to an account is irrevocable; (4) a money-back guarantee to cover situations where a funds transfer is not completed, coupled with a discharge rule for cases where the transfer is completed; and (5) an antifraud rule to allocate liability for fraudulent payments instructions. See United States (1989).

    Wholesale ACH credit transfers are governed by the U.C.C.

    Data on payments volume are from BIS (1994b), pp. 101-12.

    Such banks are likely to present checks directly to other banks or use Fed check clearing services.

    However, the rules do not specify whether settlement must be on a gross or net basis.

    The Financial Services Policy Committee is chaired by a Reserve Bank president and has members that are presidents or vice-presidents of a number of Reserve Banks.

    The Federal Reserve Bank of New York operates its own computer using the new version of the funds transfer software.

    Within overall M2, there has also been some shift from bank deposits toward currency, another sign of the disintermediation process.

    In early 1995, the required reserve ratio was lowered to 3 percent for kwacha deposits and to zero for foreign currency deposits. Liquidity requirements were also lowered at that time.

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