CLEARING SYSTEMS anb 1
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 2
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 3
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 4
Clearing Systems NSS Cheque and Credit Clearing Company process anb 5
Clearing Systems NSS Clearing cheques with cheque truncation anb 6
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 Designed to eliminate Herstatt risk (but does it? ) anb 7
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 8
Clearing Systems RTGS Hong Kong Clearing House Automated Transfer System process (CHATS) anb 9
Faster Payments Service anb 10
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 11
Clearing Systems Continuous Linked Settlement (CLS) 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
Clearing Systems Benefits of CLS 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 liquidity anb 13
Clearing Systems Card Payments anb 14
Clearing Systems There are some ‘oddballs’ London US Dollar Clearing London Currency Settlement Scheme Euro Clearing Hong Kong Currency Clearing anb 15
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 16
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 17
International Payments Cover Method anb 18
Serial Method COMPANY XYZ (HONG KONG) COMPANY ABC (SINGAPORE) INVOICE MT 210 ADVICE TO RECEIVE PAYMENT INSTRUCTION Credit Bank ABC account at Bank DEF Debit Co. ABC account Debit Bank UVW account BANK ABC (SINGAPORE) ADVICE OF RECEIPT Credit Bank DEF account at Bank UVW Credit Bank XYZ account at Bank UVW Debit Bank DEF account BANK DEF (USA) BANK UVW (USA) MT 103 Payment Order 19 Credit Co. XYZ account BANK XYZ (HONGKONG) MT 103 Payment Order Debit Bank ABC account CREDIT ADVICE
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