Clearing Systems anb

Clearing Systems End of Day Net Settlement Systems (NSS) Real Time Gross Settlement Systems (RTGS) Intra Day Net Settlement (Hybrid) Systems Continuous Linked Settlement anb

Clearing Systems NSS Traditional Approach Amounts are netted and One amount is paid or received across settlement accounts with CB at end of day/period Creates intra-day exposures Finality at end of ‘period’ Risk – position built up with a member during the day will not be settled So – Collateral, Guarantees, Bilateral debit/credit caps anb

Clearing Systems NSS Helps preserve participants liquidity Usually used for low value payments and paper based instruments Lower cost Examples: UK cheque clearing, BACS, ACH in USA anb

Clearing Systems NSS   Cheque and Credit Clearing Company process anb

Clearing Systems NSS Clearing cheques with cheque truncation anb

Clearing Systems RTGS Each payment settles singly and bilaterally across accounts at the settlement bank, usually the Central Bank e.g. Bank of England Eliminates settlement risk Herstatt Risk Designed to eliminate Herstatt risk (but does it?) anb

Clearing Systems RTGS Payments should arrive with value, availability and finality Used for high value/urgent payments More expensive than NSS Examples: UK CHAPS, Fedwire in the USA, CHATS in Hong Kong anb

Clearing Systems RTGS anb Hong Kong Clearing House Automated Transfer System process (CHATS) anb

Faster Payments Service anb

Clearing Systems Hybrid Intra-day settlement at pre-defined periods Intra-day finality Most located in Europe and handle clearing of euro payments Examples - CHIPS (USA) - CLS anb

Clearing Systems Continuous Linked Settlement (CLS) Payment versus payment system 71 full members CLS Services owns CLS Bank Inc, USA an Edge Act Bank Main operations in London/USA Some 5 Trillion USD settled daily (95% of daily traded volumes) Eliminates 4 trillion of settlement risk anb

Clearing Systems Benefits of CLS Used to settle FX transactions between banks real time Reduces number of bank to bank payments CLS is a common counter-party, payment versus payment Reduces risk and costs of high volumes of large value funds transfers Banks will obtain real-time information on intra-day liquidity anb

Clearing Systems Card Payments anb

Clearing Systems There are some ‘oddballs’ London US Dollar Clearing London Currency Settlement Scheme Euro Clearing Hong Kong Currency Clearing anb

Clearing Systems Some Domestic Payment Methods Paper-based Cash Cheques Bank transfers or giros Postal giros Bills of exchange Promissory notes Banker’s drafts anb

Clearing Systems Some Domestic Payment Methods Electronic Funds transfer Urgent wires Standard EFT Automated clearing house payments Standing order Direct debit Electronic bills of exchange Plastic (credit, charge, cheque guarantee, cash dispenser, debit) Financial EDI anb

International Payments Cover Method anb

Serial Method MT210 ADVICE TO RECEIVE MT103 Payment Order COMPANY ABC (SINGAPORE) COMPANY XYZ (HONG KONG) BANK ABC (SINGAPORE) BANK XYZ (HONGKONG) BANK DEF (USA) BANK UVW (USA) PAYMENT INSTRUCTION INVOICE CREDIT ADVICE ADVICE OF RECEIPT Debit Co. ABC account Debit Bank ABC account Debit Bank DEF account Debit Bank UVW account Credit Bank ABC account at Bank DEF Credit Bank DEF account at Bank UVW Credit Bank XYZ account at Bank UVW Credit Co. XYZ account MT103 Payment Order MT210 ADVICE TO RECEIVE