anb 1

End of Day Net Settlement Systems (NSS) Real Time Gross Settlement Systems

(RTGS) Intra Day Net Settlement (Hybrid)

Systems Continuous Linked Settlement

anb 2

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 3

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 4

anb 5

  Cheque and Credit Clearing Company process

anb 6

Clearing cheques with cheque truncation

Each payment settles singly and bilaterally across accounts at the settlement bank, usually the Central Bank e.g. Bank of England

Eliminates settlement risk

Designed to eliminate Herstatt risk (but does it?)

anb 7

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 8

anb 9

Hong Kong Clearing House Automated Transfer System process (CHATS)

anb 10

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 11

Payment versus payment system 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 12

Used to settle FX transactions between banks real time

17 currencies 5 hour window (some exceptions) 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 liquidityanb 13

anb 14

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

anb 15

Paper-based Cash Cheques Bank transfers or giros Postal giros Bills of exchange Promissory notes Banker’s drafts

anb 16

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 17

anb 18

19

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

MT103Payment Order

MT103Payment Order

MT210ADVICE TO

RECEIVE