1. Clearing Systems
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2. Clearing Systems End of Day Net Settlement Systems (NSS)
Real Time Gross Settlement Systems (RTGS)
Intra Day Net Settlement (Hybrid) Systems
Continuous Linked Settlement
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3. 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
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4. 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
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5. Clearing Systems NSS
Cheque and Credit Clearing Company process
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6. Clearing Systems NSS
Clearing cheques with cheque truncation
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7. 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?)
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8. 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
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9. Clearing Systems RTGS anb
Hong Kong Clearing House Automated Transfer System process (CHATS)
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10. Faster Payments Service
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11. 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
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12. 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
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13. 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
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14. Clearing Systems Card Payments
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15. Clearing Systems There are some ‘oddballs’ London US Dollar Clearing
London Currency Settlement Scheme
Euro Clearing
Hong Kong Currency Clearing
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16. Clearing Systems Some Domestic Payment Methods
Paper-based
Cash
Cheques
Bank transfers or giros
Postal giros
Bills of exchange
Promissory notes
Banker’s drafts
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17. 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
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18. International Payments Cover Method
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19. 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