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E Payment System Introduction Of Large Value Payment System

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- Basic concept of the Inter Bank Payment System.
- Explain on the basics of Real Time Settlement System.
- Payment system in Vietnam.
- Payment system in Nigeria
- Current trend of the Large Value Payment System using other settlement method.

Published in: Economy & Finance, Business
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E Payment System Introduction Of Large Value Payment System

  1. 1. Introduction of Large Value Payment System October 2008
  2. 2. Table of Contents Inter Bank Payment System Real Time Settlement System • Explain basic concept of the Inter Bank Payment System Basic Concept of RTGS System • Explain on the basics of Real Time Settlement System Case I : State Bank of Vietnam • Payment system in Vietnam Case II : Central Bank of Nigeria (CIFTS) • Payment system in Nigeria Current Trend of Large Value Payment System • Current trend of the Large Value Payment System using other Case III : Hybrid LVPS in Other Countries settlement method • RTGS in other countries Basic Concept of Hybrid LVPS • New Hybrid System Conclusions
  3. 3. Inter Bank Payment System (IBPS)
  4. 4. Inter Bank Payment System Concept of IBPS Legal Frame Work to move funds between Concept of IBPS banks for the bank and customer. To back up the Legal Frame Work, computer system is used now a days. Instruction Processing Authentication, Validation, Reconciliation and Confirmation of Payment Instruction Settlement Processing Settle the instruction between the Settlement Accounts and give Finality and Irrevocability of the settlement. Interface with other systems Able to connect other system that requires a settlement such as Net Settlement Systems (Check Clearing, EFT, Credit Card, ATM, etc), Delivery verses Payment Settlement Time Gross Settlement Net Settlement system, Discount House and Central Bank banking system Designated Time Designated Time Designated Time Net Settlement Gross Settlement (DTNS) Real Time Real Time Gross Settlement Not Applicable (RTGS)
  5. 5. Inter Bank Payment System Comparison Comparison of two types of Settlement System Risk reduction method employed for DTNS Clarification RTGS DTNS in many countries Type of Operation Credit Payment Credit Payment • Loss Sharing Debit Payment Debit Payment - Loss shared amongst participating banks Settlement Method Gross Settlement Net Settlement • Overall Limit Control - Each participating bank has limit set Settlement Time Real Time Designate Time Targeted Transaction Large Value Small Value Low Volume Large Volume Settlement Risk No Risk Risk exist
  6. 6. Inter Bank Payment System Risk Factor Risks of Inter Bank Payment System Risk Type Cause of risk Risk Management RTGS DTNS Credit Risk Replacement Cost Risk and None Risk exist Principal Risk caused by bankruptcy Liquidity Risk Insufficiency of - No Settlement Risk - Debit Cap Settlement Funds - Collateralization - Loss Sharing Systematic Risk Caused by Credit Risk and Reduce the Credit Risk and Liquidity Risk Liquidity Risk cascading to other Credit Institutions Legal Risk Lack of Legal Framework Sound Legal Framework BIS Core Principles Operation Risk - Application System Failure - Well designed system - Operator’s Understanding - Operator Training
  7. 7. Inter Bank Payment System Risk Management Net Settlement Risk Management Calculated based on Credit level, Collaterals, Low value activities By Application System (Overall Limit Control) No payment instruction but can Receive payments Debit Cap (Limit) Warning level Warning issued but keep continue Payment activity By Policy and Agreement (Loss Sharing among participants) Loss Loss shared amongst the Participants Total Default Prevent total collapse of the Financial System Value Covered by Collaterals
  8. 8. Real Time Gross Settlement (RTGS)
  9. 9. Real Time Gross Settlement System Concept of RTGS A Payment system in which processing and Real Time Gross Settlement settlement take place continuously in real time (that is, without deferral) and gross (I.E. Transaction by transaction) Settlement of Credit Transfer Instruction Settlement Processing will be done when there is sufficient balance in the settlement account with the Central Bank. Settlement of Credit Transfer Instruction is Finality and Irrevocability guarantied for it’s FINALITY and IRREVOCABILITY. Thus it gives minimum or free of Settlement Risk.
  10. 10. Real Time Gross Settlement System Components of RTGS Interface with the participants or other Instruction Connectivity systems Authentication, Validation, Reconciliation Instruction Processing and Confirmation of Payment Instruction Settle the instruction between the Settlement Processing Settlement Accounts and give Finality and Irrevocability of the settlement. Sufficient Balance? Yes No Queue Management Queue Mechanism: FIFO Gridlock Resolution: SA Queue • Bypass FIFO • Reordering • Cancellation
  11. 11. Real Time Gross Settlement System Requirements of RTGS Clearly Defined Rules and Regulation As BIS recommended, the central bank must have clearly Central Bank need to have legal frame work for the electronic payment system defined Rules and Regulation, Operation Guide to operate in placed before the payment system in production Inter Bank Payment System to prevent System Risk and collapse of Financial system of the country. Intra Day Liquidity Facilities Facilities are needed to resolve the short term liquidity Central Bank need to provide Intra Day problem of participating bank. Facilities such as Overdraft, Liquidity Facilities as a last resort of source of liquidity Central Bank Loan, Money Market, etc. These facilities are backed by collaterals such Gov Bonds to minimize Credit Risk.
  12. 12. Real Time Gross Settlement System Required Functionality Queue Management • Queuing Mechanism If the payment instruction cannot be settled because of insufficiency of the - Centrally Managed account balance, the instruction will be queued for the convenience and flexibility - First In First Out (FIFO) of the RTGS system. • Gridlock Resolution Mechanism The Queuing principal is First In First Out (FIFO) base. - By Pass FIFO But because of this FIFO principal, there - Reordering, Cancellation, etc could be locked situation occurred among payment instruction even there’s sufficient fund is available in the account. • Queue Monitoring To resolve the situation, Gridlock • Settlement Account Monitoring resolution solutions should be provided and monitoring function for the • Queue Cancellation participants and the central bank is required. - by originated bank - by Central Bank of the EOD
  13. 13. Real Time Gross Settlement System Benefits Benefits • Remove Settlement Risk for the very important Large Value funds transfers including Net Positions from the Retail Payment Systems • Fast turnaround of the funds • Immediate and Irrevocable Funds transfer • Easy to execute the monetary policy of the central bank • Boost economy activities of the country • Reduce the Systematic Risk of the payment system of the country
  14. 14. Basic Concept of RTGS System
  15. 15. RTGS Overview of PSC-RTGS PSC-RTGS System has three (3) main components. Modules of PSC-RTGS • Participant End Workstation (TAD) • RTGS Server • RTGS Control Workstation (OCT) • Participant information Participant • User & Approver Control Workstation • Encryption/Decryption of Data (TAD) • Transaction Entry • Reports and Inquiries Participant Central Bank RTGS Server TAD OCT • Settlement of Payment instruction • Participant Management • Settlement Account management RTGS TAD Server OCT • Queue Management Server • Billing Application Application Application • Inquiry and Monitoring • Audit Trail RTGS • Management of the System • Operation of the system TAD Local RTGS Server Control • Monitoring Database Database Workstation • Parameter control (OCT) • Participant Management
  16. 16. PSC-RTGS RTGS Technical Flow of Message Application Structure Structured as V-Shaped Message flow Client/Server based configuration • MS Windows Participant Participant A Participant B • Participant End • Visual Basic V 6.0 Workstation (Sender) (Receiver) • Oracle DB Application (TAD) • UNIX/Solaris RTGS • C and JAVA • Server Application • Oracle DB Server RTGS Server Participant Interface • MS Windows RTGS Control • RTGS system Settlement on A and B • Visual Basic V 6.0 Workstation control Application • Oracle DB (OCT) 16
  17. 17. RTGS Block Diagram of RTGS System Supported Types of Transaction SA A. Inter Bank Fund Transfer (including 3rd Party) System Management System B. Debit Transfer (Central Bank use Settlement Account Management only) C. Net Settlement - Retail Payment Systems D. Liquidity movement between Settlement Engine with Current Account and Settlement Queue Management & Account of a participants Gridlock Resolution G. DvP OCT H. PvP Supported Net Settlement Local Simulation Multi Currency Fund Transfer Multi Language Function(RTGS) SWIFT Interface DNS Function Accounting DvP Delivery Channel Subsystem System (Banking) Queue Management A. Queuing: FIFO Cheque B. Cancellation: by Bank & CBN TAD TAD EFT Bank 1 Bank N Clearing C. Reordering: by Bank & etc Centers D. Gridlock Resolution - Bypass FIFO
  18. 18. PSC-RTGS Transaction Flow of PSC-RTGS System Instruction Process Flow Payment Payment instruction encrypted at TAD Instruction Decryption Authentication and sent to RTGS server. Instruction decrypted and authenticated. Validation Queue Validate instruction Bypass FIFO, FIFO Balance check for the settlement, Cancellation settled if the balance is sufficient or Balance Gridlock queued if the balance is insufficient. S.A. Queuing Check Resolution Result of the settlement is encrypted and sent to the originator. Journal is sent to the core banking Settlement system (Accounting System) of the central bank Encryption Accounting System Payment Notify Order/Advice
  19. 19. PSC-RTGS Authentication & Validation of Instruction Authentication Validation • TAD Key • Institution status • IP Address • Message Format • Approver Key • MAC check • Connection Key Approver Key control (PKI) RTGS Server SMS Electronically Delivered (8bytes) Participants TAD • Key Generation Key PRT • Key Management Physically delivered ½ (8 bytes of 16 bytes) of Approver Key in sealed envelop
  20. 20. PSC-RTGS Account Structure • Current Account is used for core banking activities purpose • Settlement Account is used for Inter Central Bank Bank settlement purpose • Settlement Account can be replenished Bank’s Accounts at by the participant at the beginning of the Core Banking System day and moved out to current account at Bank’s Account at RTGS Request / Ack the end of the day automatically. CA • Separating the two account gives each Response / Order Actual Core Banking system process more independently and Transaction create less traffic between two systems SA SA Journal LV Transaction Mirror
  21. 21. PSC-RTGS Settlement of Net Position (D+0) The PSC-RTGS has the Simulation Function of the Net Files that received Notification to the Participant from Net Settlement system such as Check Clearing system at each Net Settlement Session. Make Multi-Lateral Advice Simulation At simulation, the notification will be Net Position of Request Intraday sent to the participant(s) with Settlement facility insufficient balance to settle the Net Banks Settlement Request Position. The participant(s) has 30 min (Central Net Settlement Systems RTGS System Core Banking Bank can set the time) to replenish the System settlement account. The time interval between the Net Simulation and the settlement can be changed by CBN. NIBSS Receive Net files After the interval time, PSC-RTGS try to CBN Br settle the Net Position. Each settlement banks’ Net Position will be settled If the Net balance is sufficient. Notification Simulation 30 Min If there is a participant who has Interval insufficient balance, the Advice will be time sent out to Core Banking System (or Settlement T24 Accounting System) immediately for the GSS required liquidity.
  22. 22. PSC-RTGS Control of Process Scheduler Parameterized Scheduler: Every Processes are parameterized for their start/end time and duration, And process sequence etc. Automatic/Manual Operation: RTGS system can run Automatic or Manual mode. Change of Operation Hours: Change of the specific operation process is done by changing the duration of the process
  23. 23. PSC-RTGS Participant Workstation (TAD) To RTGS Server To RTGS Server • Single TAD or multiple TAD can be used as the participant’s requirement Communication TAD TAD S • The participant can have interface with their Core Banking package for the LAN • Communication Straight Through Processing using XML • Entry file format. • Approve XML TAD TAD Core C C Banking Instruction manual entry and Approve To RTGS Server Functions of TAD - Payment Entry TAD - Payment Approval - Receive Advice Enter - Receive Reconciliation Data Authorization - Make Inquires Instruction - Make Monitoring - User Management Approver approve the - Encryption / Decryption Instruction that entered. - Reporting Manual Instruction entry The instruction then or by interface encrypted with Approver Key
  24. 24. Case Study
  25. 25. Case I :State Bank of Vietnam
  26. 26. State Bank of Vietnam Overview of IBPS in Vietnam IBPS in Vietnam Modules of IBPS in Vietnam The Vietnamese Inter Bank Payment System (IBPS) is • Terminal Access Device (TAD) divided into 2 sectors, RTGS and RPS (Retail Payment • Client Application for Participants System). Participant • Transaction Entry and Posting Workstation • Net Settlement Data Unlike other IBPS in other countries, Vietnamese IBPS is • Reports and Inquiries Distributed processing systems. They have provincial level of IBPS for the intra provincial transaction and national level of IBPS for the inter provincial transactions • High Value payment for both high-value and low-value payments via TAD. RTGS • Settlement of Net Positions Server • Queue Management Modules of Vietnam IBPS • Clearing of Low Value payments RPS • Netting of Low Value payments • RTGS and Retail Payment (Net Settlement Server • Debit Cap control System) Server for Province center and for National center - Processes High Value Payment instruction - Clearing and Netting of Low Value Payment instruction • Operation Control Terminal (OCT) Central • Management and control of the Workstation system • Terminal Access Device (TAD) For CBN • Monitoring - Participant Workstation • Operation of the system • Operation Control Terminal (OCT) - Central Workstation for Central Bank Use ONLY
  27. 27. State Bank of Vietnam Overall Structure Basic Transaction Flow Transaction Flow IBPS National-wide Transaction NPSC: Headquarter of SBV RTGS RPS (National Payment System Center) Low Value & High Value Trx Regional Transaction Regional Transaction SBV Extranet PPC 1: Branch of SBV PPC 2: Branch of SBV (Provincial Payment Center) (Provincial Payment Center) TAD TAD TAD TAD TAD TAD TAD TAD TAD Bank 1 Bank 2 Bank N Bank 1 Bank 2 Bank N Bank 1 Bank 2 Bank N
  28. 28. Case II : Central Bank of Nigeria (CIFTS)
  29. 29. Central Bank of Nigeria (CIFTS) Overview of CIFTS CIFTS in Nigeria Modules of CIFTS The Real Time Gross Settlement System (RTGS) is • Transaction Entry and Posting the center of all payment systems in Nigeria. The • Message Encryption/Decryption Participant participants are connected using Central Bank of Nigeria • User Management Workstation (CBN) Extranet using TAD, the participant end • Reports and Inquiries (TAD) • Reconciliation workstation. • Multi User capability Electronic Fund Transfer system, Clearing Houses and Securities systems are connected to CIFTS for the • Settlement of High Value payment settlement of the Net Position • Settlement of Net Positions from Ancillary systems RTGS • Settlement Account management Server • Participant management • Billing, Reports and Inquiries Modules of CIFTS • Audit Trail • RTGS Server Central • Management of RTGS • Terminal Access Device (TAD) Workstation • Operation of RTGS - Participant Workstation For CBN • Operation Monitoring • Operation Control Terminal (OCT) (OCT) • Transactions Monitoring - Central Workstation for Central Bank Use ONLY
  30. 30. Central Bank of Nigeria (CIFTS) Overall Structure CIFTS T24 RTGS Core Banking System -Journals High Value Trx -Intraday Facilities -Liquidity transfer (SA <-> CA) CBN Extranet TAD NIBSS CBN CSCS TAD Discount (Low Value Clearing Securities Participants Houses System) Houses Settlement
  31. 31. Current Trend of Large Value Payment System (LVPS)
  32. 32. Current Trend of LVPS Raised Issues Against RTGS as LVPS Since the RTGS settlement method is Required Huge amount of liquidity for Gross base, each participant required the participants every day to satisfy huge amount needed a day to cover the payment instructions. And it becomes the settlement the burden of the participants. It is tendency of the financial institution Most of the payment instructions are that they use fund as much as they can to earn earnings of the fund. It create entered into the RTGS at last minute the situation that the payment instructions are entered into the system before the closing of the system. It requires system more efficient (larger system) and the payment system might exposed at Liquidity Risk because the lack of time to get liquidity to settle. Needs are arose to resolve the issues Hybrid method is for the Liquidity HYBRID Savings for the participants with Low For Liquidity Saving Risk Factor
  33. 33. Current Trend of LVPS Payment Entry by time (Sample) Statistical Report: BOK-WIRE per 10 Min Statistical Report: Hourly Settlement Rate Unit: Billion KRW against Total amount of Daily Transaction Amount of Trx Number of Trx Time (Hr) Ref: Payment System Operation Report of 2007 by Bank Of Korea (BOK) 33
  34. 34. Current Trend of LVPS Migration from RTGS to Hybrid LVPS To save the liquidity that needed by participants and promote the instruction entry time, the Hybrid Method of the RTGS function and DTNS RTGS Hybrid function are employed for the LVPS recently. For example, Germany developed RTGS Plus system that employed RTGS and DTNS function into RTGS + Net (Offset) the system. Now the TARGET II system 2000 will be the Single Platform for the LVPS for the EU countries. TARGET II is hybrid system. Name of Live Run of Country Product Hybrid System Germany RTGS Plus 2001. 11 Not many countries are planning or Italy New BI_REL 2003. 6 started the project to convert their Singapore MEPS+ 2006. 12 RTGS to hybrid system yet. EU Target2 2008. 7 Japan RTGS-XG 2008. 8 Korea BOL-WIRE 2009. 9
  35. 35. Current Trend of LVPS Risk Factor of Hybrid LVPS RTGS system has no Settlement Risk but the Efficiency of Liquidity is low High DTNS DTNS has high Liquidity efficiency and high settlement risk factor Settlement Risk Factor Hybrid System has no Settlement Risk factor and high Efficiency of Liquidity . RTGS Hybrid Low Low High Efficiency of Liquidity
  36. 36. Current Trend of LVPS Concept of Hybrid LVPS – TARGET2 Types of Payment Instruction Used  Express payment: Time critical payment requires RTGS function (FIFO)  Limit payment: Not so time critical payment that can be offset. Participant can set limit of this type of payment. The limit can be set bilaterally and multilaterally. Offsetting Conditions  Bilateral offsetting take place continuously (Bypass FIFO)  Multilateral offsetting take place with a time interval (i.e., every 10 min) and at the end of day (Bypass FIFO)  New payment instruction entered  Settlement Account balance increase  Limit is increased Others  Participants can move liquidity to their other account overnight  Participants can monitor either Outgoing queue or Incoming queue  Participant can change payment type from express to limit
  37. 37. Current Trend of LVPS Concept of Hybrid LVPS Express Instruction: Time critical payment instruction Express Instruction Settlement Engine Module Limit Instruction: Not that Time critical instruction that can be offset. SA RTGS Bilateral Offsetting: When new Limit Instruction entered, it triggers offsetting between the Business Queue Originator and Receiver . Module Offsetting Multilateral Offsetting: (Call At a time that setup, Multilateral (amongst all the participants) offsetting DvP OTC, Bilateral is processed Ordinary) Offsetting B Limit Bilateral Limit: Limit can be set for the counter party. Multilateral This limit is used when bilateral offsetting process. Offsetting M Limit Multilateral Limit: Limit This limit is for total limit. Limits are set by the participant to Instruction prevent over drawn their settlement account for the Express Instruction or to control their liquidity.
  38. 38. Current Trend of LVPS Offsetting Mechanism of Hybrid LVPS Bilateral offset is between the originator Bilateral Offsetting of the new payment instruction and the counter party (receiver) of the instruction. A B Entry of a new Limit Payment Instruction triggers the offsetting between two participants Multilateral Offsetting Multilateral offsetting is triggered by the Timer. The interval time can be setup by the central bank. Multilateral offsetting involves all the A queued instruction including Express and Limit instruction from all the participants. B C D E
  39. 39. Current Trend of LVPS Settlement Process of Hybrid LVPS Event Driven Express RTGS Instruction Successful Bilateral Offsetting Algorithm will run when one of the following event Test Bilateral occurs: Limit Instruction Offsetting Successful 3.Submission of new payment Event Driven instruction 4.Increase of the Settlement Centralized Settle Account, Limit, Queue Monitoring, 5.Settlement, Reordering or Reordering, Cancellation of first queued Cancellation Unsuccessful instruction. Unsuccessful Time Driven Successful Multilateral Offsetting Algorithm will Test Multilateral Offsetting run at designated time or time interval of the day. And it will also Time Driven run at the end of day process.
  40. 40. Current Trend of LVPS Rules of Settlements Strict First-In First-Out (FIFO) Principle Payment RTGS Hybrid Priority Highly Urgent FIFO FIFO Urgent FIFO FIFO FIFO can be Normal FIFO breached
  41. 41. Current Trend of LVPS Use of the Limits In general, limits determine the payment amount (priority = normal) a participant is willing to pay to another participant (bilateral) or to the other participants (multilateral - towards which no bilateral limit is defined), without having received payments (that are credits) first. It is possible to set the following types of limits: • Bilateral limit • Multilateral limit The limits are debit limits and not credit limits. The setting of these limits enables the direct participant: • to prevent unbalanced dissipation of liquidity with regard to other direct participants. • to avoid free-riding on the liquidity of a direct participant by another participant. • to synchronize the payment flow with other direct participants and to promote its early submission.
  42. 42. Current Trend of LVPS Bilateral Limits Bank A Bank B Bilateral position The bilateral position from Bank A Normal Liquidity for Normal towards Bank B is defined as the Payments Settling normal Payments sum of payments received from to Bank B Payments to Bank A Bank B (credits for Bank A), minus the sum of payments made to Bank B (debits for Bank A). This means if the result is negative, the bilateral limit will be utilized with this amount. Effect of bilateral limit With the bilateral limit, the direct participant restricts the use of liquidity when submitting normal payments for another direct Bilateral limit participant. Usable liquidity of Bank A for settlement vis-à-vis Bank B with Bank B Usable liquidity for settlement with Bank B
  43. 43. Current Trend of LVPS Multilateral Limits Bank A Bank C,D,E… Multilateral position The multilateral position from Normal Liquidity for Normal Bank A is defined as the sum of Payments Settling normal Payments payments (credits for Bank A) to Bank C,D,E… Payments to Bank A received from all direct PM participants towards which no bilateral limit has been defined, minus the sum of payments (debits for Bank A) made to these direct PM participants. This means if the result is negative, the multilateral limit is utilized with this amount. Effect of multilateral limit With the multilateral limit, the Bilateral limit direct PM participant restricts the Usable liquidity of Bank A use of liquidity, when submitting for settlement vis-à-vis normal payments for any other with Bank C,D,E… Bank C,D,E… direct PM participant for which a bilateral limit has not been set. Usable liquidity for settlement with Bank C,D,E…
  44. 44. Current Trend of LVPS Achievement of the Hybrid System Achievements • Liquidity Saving for the participants • Low Settlement Risk and High efficiency of the Liquidity • Make the participants for early entry of the payment instructions
  45. 45. Case III : Hybrid LVPS in Other Countries – EU
  46. 46. Hybrid LVPS in European Union Target 2 in EU Central Bank The TARGET2 is Single Shared Platform (SSP) that supports all the participants in EU and will be completed in 2008. Once the TARGET2 completed, all the RTGS systems in each member countries will not be used. • Standardization: to support all the member countries • Neutrality: Neutrality of difference of the market and infrastructure that each member countries hast • Common platform and Single Share Platform (SSP): All the participants in EU use singly system • Single Price structure: Has single cost structure with in TARGET2 • Enhance the liquidity management: support liquidity management function to all the participant, Liquidity reserve function by Highly urgent, Urgent and Normal • Transparency of Queue monitoring • Interbank direct debits • Future maturity date payment instruction: within 5 business day
  47. 47. LVPS in European Union Target 2 in EU Central Bank TARGET2 Hybrid System Standing Static Data Payment Module (PM) Facilities Management (SF) (SM) Payment Processing Home Accounting Module Monitoring (HAM) Participant Ancillary Target Interface Systems Reserve Contingency Interlinking (Y-Copy) Interface Management Module (RM) (CM) Standard Information and Control Module (ICM) Interface Credit Ancillary Internal Institution Systems Accounting (CI) (AS)
  48. 48. LVPS in European Union Modules of Target 2 System Module Functions - Payment Processing - TARTGE Interface Payment Module (PM) - Participant Interface (SWIFT Y copy) - Ancillary Systems Interface (ASI) - Interface with Accounting System of the central bank Standard Interface (SI) - Collateral Management - Overnight Deposit Accounts Standing Facilities (SF) * - Marginal Lending Accounts Static Data Management (SM) - Parameter control module Monitoring - Monitoring of the system The Reserve Management Module (RM) enables the CBs to Reserve Management (RM) * perform some not full functionality for the reserve requirements management. * Optional for each Central Bank
  49. 49. LVPS in European Union Modules of Target 2 System Module Functions Home Accounting Module (HAM) manages accounts that can be held by two different kinds of users: - Banks and other entities, according to the rules defined by the respective CB - CB customers (correspondents and others) not allowed, according to the TARGET Guideline, to open accounts in the PM Home Accounting HAM accounts, according to the specific situation of each Module (HAM) individual country, can be held by: -banks not direct PM participant, but subject to minimum reserve requirements and wishing to manage cash withdrawals, deposits, etc. directly. - banks which are direct PM participant, but need to have a second set of accounts in order to settle specific operations The use of the CM is only envisaged for the processing of critical Contingency Module and very critical payments in specific situations. These are: (CM) • Unavailability or inaccessibility of the SSP components. • The time needed for the activation of the alternate site/region lasts too long. Participants (credit institutions, ancillary systems, other Information and participants and CBs) with comprehensive online information tools Control Module (ICM) and easy-to-use control measures appropriate to their different business needs.
  50. 50. LVPS in European Union Transfer Mechanism using SWIFT net TARGET2 Hybrid System PM ICM SWIFTnet SWIFTnet FIN Y copy InterAct & FileAct SWIFTnet SWIFT Alliance 3rd Party Solution Separately purchased Participant application
  51. 51. Case IV : Hybrid LVPS in Other Countries - Korea
  52. 52. Bank of Korea Hybrid System for BOK Current System Future System Current System BOK’s current Large Value Payment System is RTGS base. Web enabled client terminal for the participants Future System RTGS Hybrid LVPS IM BOK’s future Large Value Payment System will be Hybrid base system. The future system will have Server-to- Server interface with the core banking system at participant bank. The purpose Web Server Middleware for Web of Server-to-Server interface is to facilitate straight through processing of Server to Server Server the payment instruction. Current web enabled client lacks direct interface with core banking system of the participant Current web enabled client will be still Web Web Web used for the participant who don’t want Server Server to have direct connection with payment PC PC PC system. Bank A Bank B Banking Banking Bank Information Monitoring System A System B Participant can access the information from IM module.
  53. 53. Bank of Korea BOK System – New Hybrid Settlement Engine Settlement Engine with Queue Settlement Queue Engine Management Management G/L This Module settle the instruction from Business Module each Business module Management CLS PvP Information Business Module Module KRW Fund Transfer DvP Call Business modules for each different type of business Interface Module AS Web Host to Web Application Server Interface Interface Host Presentation layer Ancillary Web Bank C’s Systems Server Core Banking System BOK Web Terminal Extranet Participant’s Terminal Participant ‘A’ Participant ‘B’ Web Terminal Web Terminal
  54. 54. Basic Concept of Hybrid LVPS
  55. 55. Hybrid LVPS Application Structure SWIFT TAD Alliance Standard Supplied Optional application by SWIFT Central SWIFT Bank Net ExtraNet Provided Provided by CB by SWIFT Note: Using SWIFT Net is optional and supported message type is only for the financial messages. HELPS® For Reports, Inquiries and other Standard messages needs to be purchased application separately.
  56. 56. Hybrid LVPS Client (Participant End) Workstation FOR THE LARGE VALUE PAYMENT Client/Server base Participant End Workstation SYSTEM, CLOSED USER GROUP NETWORK IS STRONGLY RECOMMENDED. • for Financial instructions processing (Payments) • for Control instructions processing Participant End Workstation • for Information monitoring This Participant End Workstation is for the central bank who prefer to utilize own network for the intra country funds movement rather than using third party network, such as SWIFT. SWIFT Interface (Optional) This web client is complete system to transact the Large Value payments • for Financial instructions processing (Payments) SWIFT Interface • other function than financial instruction needs to be built separately by third party vendor SWIFT Interface is for the central bank who prefer to utilize SWIFT network for the intra country funds movement rather than using own network.
  57. 57. PSC Hybrid LVPS Application Configuration Participant Module: Participant Module: Terminal Access Device (TAD) SWIFT Alliance Participant Participant Participant Participant TAD TAD Alliance Alliance Full Copy Full Copy Full Copy Full Copy CB SWIFT Network Net Payment instruction is reassembled at SWIFT CB Alliance Settlement Settlement Module Module For information and control purpose, other SWIFT TAD has COMPLETE SETS of required functions Network and special application is needed.
  58. 58. Conclusions Implementation of LVPS Items Description • Well defined legal framework is necessary Legal Framework • Well defined Rules and Regulation Requirements • Well defined requirements Communication network • Between the participants and the central bank (SWIFT or own network) • Interface with other systems such as the retail payment systems Intra Day Liquidity • Liquidity facilities needed from the central bank as a last resort to the participants
  59. 59. Conclusions LVPS Application Solution Items Description Proven solution • Proven system that operates in other central banks Settlement Method • Hybrid System recommended for the liquidity saving Interface • Interface with Accounting System • Interface with Retail Payment Systems • Interface with other systems Participant End • Standalone workstation application for the central bank’s Workstation own network or • SWIFT Terminal for the usage of SWIFT financial network
  60. 60. Conclusions Hardware Systems Items Description Main processing system • Open platform Database • Relational Database Management System Communication protocol • TCP/IP base Workstations • PC User Interface • Graphical User Interface
  61. 61. THANK YOU
  62. 62. Q and A

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