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Clearing Systems

Clearing Systems. Clearing Systems. End of Day Net Settlement Systems (NSS) Real Time Gross Settlement Systems (RTGS) Intra Day Net Settlement (Hybrid) Systems Continuous Linked Settlement. Clearing Systems NSS. Traditional Approach Amounts are netted and

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Clearing Systems

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  1. Clearing Systems anb

  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 anb

  3. Clearing SystemsNSS • 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

  4. Clearing SystemsNSS • 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

  5. Clearing SystemsNSS Cheque and Credit Clearing Company process anb

  6. Clearing SystemsNSS Clearing cheques with cheque truncation anb

  7. Clearing SystemsRTGS • 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

  8. Clearing SystemsRTGS • 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

  9. Clearing SystemsRTGS Hong Kong Clearing House Automated Transfer System process (CHATS) anb

  10. Faster Payments Service anb

  11. Clearing SystemsHybrid • 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

  12. Clearing SystemsContinuous 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

  13. Clearing SystemsBenefits 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

  14. Clearing SystemsCard Payments anb

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

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

  17. Clearing SystemsSome 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

  18. International PaymentsCover Method anb

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

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