1. Granularity Limited April 20011 International Payment Systems Week 2001 Granularity Ltd Kathleen Tyson-Quah ktq@granularityltd.com April 2001

2. Granularity Limited April 20012 International Payment Systems Week 2001 Sensible Technology Compelling Need Model Validation An Elegant Solution Granular Payment Control Payment Risk Reduction Next Steps

3. Granularity Limited April 20013 International Payment Systems Week 2001 Compelling Need The Payments Business Problems in Payments

4. Granularity Limited April 20014 International Payment Systems Week 2001 The Payments Business 50% 36% 14%

5. Granularity Limited April 20015 International Payment Systems Week 2001 The Payments Business $4 trillion in daily payments 2000 banks dominate payment flows  Wide variety of internal hierarchies  Wide variety of technical and management processes 40 currencies actively traded Each currency has different payment systems  different platforms,  different data formats,  different language characters Multicurrency systems very complex Bank BBank A Client AClient B Payment System AB

6. Granularity Limited April 20016 International Payment Systems Week 2001 Problems in Payments Liquidity “Hoarding” Liquidity gridlock Liquidity uncertainty Credit uncertainty Periodic major crises  operational failures (Bank of New York)  defaults (Barings, Drexel) Poor system controls and integration Fragmented management hierarchies Payment System Bank ABank B AB

7. Granularity Limited April 20017 International Payment Systems Week 2001 An Elegant Solution The Granularity Solution Advantages of Granular Payments Control Payment Banks & Users Granularity Network Overview Payment Bank Filter Integration The Filter Process Improved Information Backward Compatibility

8. Granularity Limited April 20018 International Payment Systems Week 2001 The Granularity Solution Addresses risk on two-way flows in a currency with the same counterparty on the same day (e.g. pay $1 billion and expect $800 million) Real-time controls on risk of paying but not receiving Real-time window on payment flows during the day Suspend & Reinstate capability

9. Granularity Limited April 20019 International Payment Systems Week 2001 Advantages of GPC Each bank controls its payment risk and liquidity risk independently Effective for all counterparties Effective for all currencies Comprehensive for all payments Simple Unilateral Low Cost ($250,000 or less basic fee) Complementary to netting and CLS

10. Granularity Limited April 200110 International Payment Systems Week 2001 Payment Banks & Users Payment Banks buy Filter Module  implements Clean Payment Limits  improves payments transparency  powerful correspondent service Users buy User Interface  comprehensive tool for risk reduction  Clean Payment Limits  Suspend & Reinstate  Overrides  periodic and real-time reporting  flexible account & counterparty structures

11. Granularity Limited April 200111 International Payment Systems Week 2001 Network Overview VPN User Interface Router Routers Reuters ATT S.W.I.F.T. IP Network Fedwire CHIPS Target LVTS BOJ-NET SIC EBA FEYCS CHAPS Domestic Payment Systems Routers Payment Bank Filter Module Granularity Core System USD EUR JPY CHF CAD GBP

12. Granularity Limited April 200112 International Payment Systems Week 2001 Payment Bank Filter Integration Liquidity/Payments Manager Queue Clearing Funds? Account Funds? Gateway to Payment System OK NO YES

13. Granularity Limited April 200113 International Payment Systems Week 2001 Payment Bank Filter Integration Liquidity/Payments Manager Payment Bank Host Application Queue Clearing Funds? Account Funds? Gateway to Payment System OK Filter Process Module FAIL NO YES PASS Application Programming Interface

14. Granularity Limited April 200114 International Payment Systems Week 2001 GPC Filter Process PASS NO YES REJECT & Notify & CACHE Is Payment Type listed? IDENTIFY Payment Type NO YES IDENTIFY Payment Amount Is Payment Amount less than Available Balance? YES CALCULATE Available Balance (REVISE) & STORE Available Balance & CACHE Transaction NO Account Holder a User or 3rdParty? Is Payee or Intermediary a Counterparty? IDENTIFY Account Holder IDENTIFY Payee & Intermediaries YES NO FOR EACH YES Override for TRN or Counterparty? YES Is Counterparty Suspended? NO

15. Granularity Limited April 200115 International Payment Systems Week 2001 Improved Information Payment Banks gain  real-time information on liquidity allocation and usage  much finer detail on payments behaviour  metrics for liquidity pricing Users gain  on-demand and periodic reports  alerts to intraday problems and shortfalls

16. Granularity Limited April 200116 International Payment Systems Week 2001 Backward Compatibility NO CHANGES TO LEGACY PROCESS FOR Trading Confirmations Matching Payment Instruction & Pre-Advice Payment Confirmations Payment Reconciliations Domestic Payment Systems Netting (and CLS)

17. Granularity Limited April 200117 International Payment Systems Week 2001 Sensible Technology Low risk as a design objective Web Technology Components

18. Granularity Limited April 200118 International Payment Systems Week 2001 Low Risk as a Design Objective Pre-existing, proven components selected for basic architecture Applications will use pre-existing standards: SWIFT and ISO data elements, data formats and objects as available in repositories Solution design minimises integration task and project risk for Users and Payment Banks

19. Granularity Limited April 200119 International Payment Systems Week 2001 Technology Components Internet protocol network with VPN/PKI security Browser Interface for ease of use and low integration costs Platform independent languages XML data format protocol and ebXML compliance Application to application data interchange (XML/EDI)

20. Granularity Limited April 200120 International Payment Systems Week 2001 Model Validation Banks and Central Banks Software & Technology Vendors The Granularity Advisory Board

21. Granularity Limited April 200121 International Payment Systems Week 2001 Banks and Central Banks Opinion-leaders at major banks targeted first 4 central banks offer “no objection” 30 banks consulted for product validation Follow-up meetings with senior department executives and operations teams

22. Granularity Limited April 200122 International Payment Systems Week 2001 Software & Technology Vendors 4 vendors of Payment/Liquidity Management Software consulted All are interested in adapting their solutions to integrate to the Payment Bank API as an upgrade feature Minimises integration task for Payment Banks using vendor solutions

23. Granularity Limited April 200123 International Payment Systems Week 2001 The Advisory Board Chaired by Richard Goulding Top ranking individual experts on risk management, payments and operations from leading banks Comfort factor for banking industry Best practice, marketing and product development guidance

24. Granularity Limited April 200124 International Payment Systems Week 2001 Payment Risk Reduction Credit Risk Liquidity Risk Systemic Risk Operations Risk Multicurrency Impact

25. Granularity Limited April 200125 International Payment Systems Week 2001 GPC and Credit Risk Credit risk is capped at the Clean Payment Limit in each currency Intraday notification of payment failure enables rapid remedial action Real-time suspension of payments in all currencies cuts forward risk from 3 days (Allsopp) to less than one day

26. Granularity Limited April 200126 International Payment Systems Week 2001 GPC and Liquidity Risk Liquidity risk is capped at the CPL Fixed, knowable risk can be covered by liquidity or credit facilities Intraday notification of shortfall Shortfall can be funded while the money market and payment system are still operating Contingent payment failures should become extremely rare

27. Granularity Limited April 200127 International Payment Systems Week 2001 GPC and Systemic Risk Default losses should be survivable to financial counterparties Operations failure impact limited Intraday remedial measures should prevent contingent payment failures Fixed, knowable loss avoids effects of uncertainty, rumour and speculation on trading markets Local liquidity and credit problems should not spread as rapidly through global markets

28. Granularity Limited April 200128 International Payment Systems Week 2001 GPC and Operations Risk GPC System  hot-offsite back-up and full resiliency  worst case failure results in status quo payments processing GPC compatible with multiple nostros in each currency GPC limits impact of operations failure on payment processing

29. Granularity Limited April 200129 International Payment Systems Week 2001 Multicurrency Risk Reduction Values are illustrative only

30. Granularity Limited April 200130 International Payment Systems Week 2001 Next Steps First Round Funding Requirements & Prototype Development Beta Bank Selection Applications Development & Testing Live Operations Controlled Scaling

31. Granularity Limited April 200131 International Payment Systems Week 2001 Sensible Technology Compelling Need Model Validation An Elegant Solution Granular Payment Control Payment Risk Reduction Next Steps

32. Granularity Limited April 200132 International Payment Systems Week 2001 Questions ktq@granularityltd.com or peter.davey@granularityltd.com