E Payment System Introduction Of Large Value Payment System

Introduction of Large Value Payment System

October 2008

Table of Contents

Inter Bank Payment System

Case II : Central Bank of Nigeria (CIFTS)

Case III : Hybrid LVPS in Other Countries

Current Trend of Large Value Payment System

Case I : State Bank of Vietnam

Basic Concept of Hybrid LVPS

• Explain basic concept of the Inter Bank Payment System

• Payment system in Vietnam

• Payment system in Nigeria

• Current trend of the Large Value Payment System using other settlement method

• New Hybrid System

• RTGS in other countries

Real Time Settlement System

• Explain on the basics of Real Time Settlement System

Basic Concept of RTGS System

Conclusions

Inter Bank Payment System(IBPS)

Instruction Processing

Concept of IBPS

Gross SettlementSettlement Time Net Settlement

Designated Time Gross Settlement

Designated TimeDesignated Time Net Settlement

(DTNS)

Real Time Gross Settlement

(RTGS)Real Time Not Applicable

Settlement Processing

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 system, Discount House and Central Bank banking system

Settle the instruction between the Settlement Accounts and give Finality and Irrevocability of the settlement.

Authentication, Validation, Reconciliation and Confirmation of Payment Instruction

Legal Frame Work to move funds between banks for the bank and customer.To back up the Legal Frame Work, computer system is used now a days.

Concept of IBPS

Clarification RTGS DTNS

Type of Operation Credit PaymentDebit Payment

Credit PaymentDebit Payment

Settlement Method Gross Settlement Net Settlement

Settlement Time Real Time Designate Time

Targeted Transaction

Large ValueLow Volume

Small ValueLarge Volume

Settlement Risk No Risk Risk exist

Comparison of two types of Settlement System


• Loss Sharing- Loss shared amongst participating banks

• Overall Limit Control- Each participating bank has limit set

Risk reduction method employed for DTNS in many countries

Comparison

Risk Type Cause of risk Risk Management

RTGS DTNS

Credit Risk Replacement Cost Risk and Principal Risk caused by bankruptcy

None Risk exist

Liquidity Risk Insufficiency of Settlement Funds

- No Settlement Risk - Debit Cap- Collateralization- Loss Sharing

Systematic Risk Caused by Credit Risk and Liquidity Risk cascading toother Credit Institutions

Reduce the Credit Risk and Liquidity Risk

Legal Risk Lack of Legal Framework Sound Legal FrameworkBIS Core Principles

Operation Risk - Application System Failure- Operator’s Understanding

- Well designed system- Operator Training

Risks of Inter Bank Payment System


Risk Factor

By Application System (Overall Limit Control)

By Policy and Agreement (Loss Sharing among participants)

Debit Cap (Limit)

Warning level

Loss

Covered byCollaterals

Total DefaultValue

Calculated based on Credit level, Collaterals, Low value activities

Warning issued but keep continue Payment activity

No payment instruction but can Receive payments

Loss shared amongst the Participants

Prevent total collapse of the Financial System


Net Settlement Risk Management

Risk Management

Real Time Gross Settlement(RTGS)

Real Time Gross SettlementReal Time Gross Settlement

Settlement ProcessingSettlement Processing

Finality and IrrevocabilityFinality and Irrevocability

Real Time Gross Settlement System

A Payment system in which processing and settlement take place continuously in real time (that is, without deferral) and gross (I.E. Transaction by transaction)

Settlement of Credit Transfer Instruction will be done when there is sufficient balance in the settlement account with the Central Bank.

Settlement of Credit Transfer Instruction is guarantied for it’s FINALITY and IRREVOCABILITY. Thus it gives minimum or free of Settlement Risk.

Concept of RTGS

Connectivity

Instruction Processing

Settlement Processing

QueueSA

Sufficient Balance?Yes No

Instruction

Settle the instruction between the Settlement Accounts and give Finality and Irrevocability of the settlement.


Authentication, Validation, Reconciliation and Confirmation of Payment Instruction

Interface with the participants or other systems

Queue ManagementQueue Mechanism: FIFOGridlock Resolution: • Bypass FIFO• Reordering• Cancellation

Components of RTGS

Central Bank need to have legal frame work for the electronic payment system in placed before the payment system in production

Central Bank need to provide Intra Day Liquidity Facilities as a last resort of source of liquidity


As BIS recommended, the central bank must have clearly defined Rules and Regulation, Operation Guide to operate Inter Bank Payment System to prevent System Risk and collapse of Financial system of the country.

Clearly Defined Rules and Regulation Clearly Defined Rules and Regulation

Facilities are needed to resolve the short term liquidity problem of participating bank. Facilities such as Overdraft, Central Bank Loan, Money Market, etc. These facilities are backed by collaterals such Gov Bonds to minimize Credit Risk.

Intra Day Liquidity Facilities Intra Day Liquidity Facilities

Requirements of RTGS

• Queuing Mechanism

- Centrally Managed

- First In First Out (FIFO)

• Gridlock Resolution Mechanism

- By Pass FIFO

- Reordering, Cancellation, etc

• Queue Monitoring

• Settlement Account Monitoring

• Queue Cancellation

- by originated bank

- by Central Bank of the EOD

If the payment instruction cannot be settled because of insufficiency of the account balance, the instruction will be queued for the convenience and flexibility of the RTGS system.

The Queuing principal is First In First Out (FIFO) base.

But because of this FIFO principal, there could be locked situation occurred among payment instruction even there’s sufficient fund is available in the account.

To resolve the situation, Gridlock resolution solutions should be provided and monitoring function for the participants and the central bank is required.


Queue Management Queue Management

Required Functionality

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

Benefits


Basic Concept of RTGS System

RTGS

Overview of PSC-RTGS

Modules of PSC-RTGS

RTGS Control

Workstation(OCT)

• Management of the System• Operation of the system• Monitoring• Parameter control• Participant Management

RTGSServer

• Settlement of Payment instruction• Participant Management• Settlement Account management• Queue Management• Billing• Inquiry and Monitoring• Audit Trail

Participant Workstation

(TAD)

• Participant information• User & Approver Control• Encryption/Decryption of Data• Transaction Entry• Reports and Inquiries

PSC-RTGS System has three (3) main components.• Participant End Workstation (TAD)• RTGS Server• RTGS Control Workstation (OCT)

ParticipantTAD

RTGS ServerCentral Bank

OCT

TAD LocalDatabase

RTGS ServerDatabase

TADApplicatio

n

ServerApplicatio

n

OCTApplicatio

n

Flow of Message

16

Application Structure

Participant A(Sender)

Participant B(Receiver)

Participant Interface

Settlement on A and B

Structured as V-Shaped Message flow Client/Server based configuration

RTGS Technical

RTGS Server

RTGS ControlWorkstation

(OCT)

• MS Windows• Visual Basic V 6.0• Oracle DB

• RTGS system control Application

RTGSServer

• UNIX/Solaris• C and JAVA• Oracle DB

• Server Application


(TAD)

• MS Windows• Visual Basic V 6.0• Oracle DB

• Participant End Application

PSC-RTGS

Delivery Channel Subsystem

Settlement Account Management

Settlement Engine withQueue Management &

Gridlock Resolution

LocalFund Transfer

Function(RTGS)

Net SettlementSimulation

DNS Function

SA

EFT & etc

ChequeClearing Centers

TADBank N

TADBank 1

Accounting System

(Banking)DvP

A. Inter Bank Fund Transfer (including 3rd Party) B. Debit Transfer (Central Bank use

only) C. Net Settlement - Retail Payment Systems D. Liquidity movement between

Current Account and Settlement Account of a participants

E. DvPF. PvP

Supported Types of Transaction

Queue Management

A. Queuing: FIFO B. Cancellation: by Bank & CBN C. Reordering: by Bank D. Gridlock Resolution - Bypass FIFO

Block Diagram of RTGS System

Syste

m M

an

ag

em

en

t S

yste

m

OCT

Supported

Multi Currency Multi LanguageSWIFT Interface

RTGS

FIFOBypass FIFO, Cancellation

Payment Instruction

Payment Order/Advice

Instruction Process FlowPayment instruction encrypted at TAD and sent to RTGS server.

Instruction decrypted and authenticated.

Validate instruction

Balance check for the settlement, settled if the balance is sufficient or queued if the balance is insufficient.

Result of the settlement is encrypted and sent to the originator.

Journal is sent to the core banking system (Accounting System) of the central bank

Transaction Flow of PSC-RTGS System

Notify

Balance Check

Settlement

Encryption

Validation

Decryption

Queuing Gridlock Resolution

Authentication

S.A.

Queue

Accounting System

PSC-RTGS

• TAD Key• IP Address• Approver Key• Connection Key

• Institution status• Message Format• MAC check

Authentication Authentication Validation Validation

SMS

• Key Generation• Key Management

RTGS Server

Electronically Delivered (8bytes)

PRTKey

ParticipantsTAD

Physically delivered ½ (8 bytes of 16 bytes) of Approver Key in sealed envelop

Approver Key control (PKI) Approver Key control (PKI)

Authentication & Validation of Instruction

PSC-RTGS

SA

Bank’s Accounts at Core Banking System

SA

Bank’s Account at RTGS

Journal LV Transaction

Core BankingTransaction

Request / Ack

Response / Order Actual

Mirror

• Current Account is used for core banking activities purpose

• Settlement Account is used for Inter Bank settlement purpose

• Settlement Account can be replenished by the participant at the beginning of the day and moved out to current account at the end of the day automatically.

• Separating the two account gives each system process more independently and create less traffic between two systems

CA

Account Structure

PSC-RTGS

Central Bank Central Bank

The PSC-RTGS has the Simulation Function of the Net Files that received from Net Settlement system such as Check Clearing system at each Net Settlement Session.

At simulation, the notification will be sent to the participant(s) with insufficient balance to settle the Net Position.

The participant(s) has 30 min (Central Bank can set the time) to replenish the settlement account. The time interval between the Net Simulation and the settlement can be changed by CBN.

After the interval time, PSC-RTGS try to settle the Net Position. Each settlement banks’ Net Position will be settled If the balance is sufficient.

If there is a participant who has insufficient balance, the Advice will be sent out to Core Banking System (or Accounting System) immediately for the required liquidity.

Make Multi-LateralNet Position of

SettlementBanks

Intradayfacility

Net Settlement Systems RTGS System Core BankingSystem

Simulation

Settlement

Request

Advice

Request

Notification to the Participant

Receive Net files

Net Simulation

Settlement

Notification

T24GSS

30 MinInterval

time

NIBSS

CBN Br

Settlement of Net Position (D+0)

PSC-RTGS

Control of Process Scheduler

PSC-RTGS

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

TADS

TADC

TADC

To RTGS Server

Instruction manual entry and Approve

CommunicationTAD

To RTGS Server

• Communication• Entry• Approve

Enter Instruction

Authorization

TAD

To RTGS Server

CoreBanking

• Single TAD or multiple TAD can be used as the participant’s requirement

• The participant can have interface with their Core Banking package for the Straight Through Processing using XML file format.

XML

Functions of TAD

Approver approve the Instruction that entered. The instruction then encrypted with Approver Key

Manual Instruction entry or by interface

Participant Workstation (TAD)

- Payment Entry- Payment Approval- Receive Advice- Receive Reconciliation Data - Make Inquires- Make Monitoring- User Management- Encryption / Decryption- Reporting

PSC-RTGS

LAN

Case Study

Case I :State Bank of Vietnam

IBPS in Vietnam Modules of IBPS in Vietnam

The Vietnamese Inter Bank Payment System (IBPS) is divided into 2 sectors, RTGS and RPS (Retail Payment System).

Unlike other IBPS in other countries, Vietnamese IBPS is Distributed processing systems. They have provincial level of IBPS for the intra provincial transaction and national level of IBPS for the inter provincial transactions for both high-value and low-value payments via TAD.

• RTGS and Retail Payment (Net Settlement System) Server for Province center and for National center - Processes High Value Payment instruction - Clearing and Netting of Low Value Payment instruction • Terminal Access Device (TAD) - Participant Workstation• Operation Control Terminal (OCT) - Central Workstation for Central Bank Use ONLY

Modules of Vietnam IBPSModules of Vietnam IBPS

CentralWorkstation

For CBN

• Operation Control Terminal (OCT)• Management and control of the system• Monitoring• Operation of the system

RTGSServer

• High Value payment• Settlement of Net Positions• Queue Management


• Terminal Access Device (TAD)• Client Application for Participants• Transaction Entry and Posting• Net Settlement Data• Reports and Inquiries

State Bank of Vietnam

Overview of IBPS in Vietnam

RPSServer

• Clearing of Low Value payments• Netting of Low Value payments• Debit Cap control

SBVExtranet

Overall Structure

State Bank of Vietnam

IBPS

RTGS RPS

TADBank 1

TADBank 2

TADBank N

Low Value &High Value Trx

Basic Transaction Flow Transaction Flow

PPC 1: Branch of SBV(Provincial Payment Center)

TADBank 1

TADBank 2

TADBank N

Regional Transaction

National-wide Transaction

NPSC: Headquarter of SBV(National Payment System Center)

PPC 2: Branch of SBV(Provincial Payment Center)

TADBank 1

TADBank 2

TADBank N

Regional Transaction

Case II : Central Bank of Nigeria (CIFTS)

Central Bank of Nigeria (CIFTS)

Overview of CIFTS

The Real Time Gross Settlement System (RTGS) is the center of all payment systems in Nigeria. The participants are connected using Central Bank of Nigeria (CBN) Extranet using TAD, the participant end workstation.

CIFTS in Nigeria Modules of CIFTS

Electronic Fund Transfer system, Clearing Houses and Securities systems are connected to CIFTS for the settlement of the Net Position

• RTGS Server • Terminal Access Device (TAD) - Participant Workstation• Operation Control Terminal (OCT) - Central Workstation for Central Bank Use ONLY

Modules of CIFTSModules of CIFTS

CentralWorkstation

For CBN(OCT)

• Management of RTGS• Operation of RTGS• Operation Monitoring• Transactions Monitoring

RTGSServer

• Settlement of High Value payment• Settlement of Net Positions from Ancillary systems• Settlement Account management• Participant management• Billing, Reports and Inquiries• Audit Trail


(TAD)

• Transaction Entry and Posting• Message Encryption/Decryption• User Management• Reports and Inquiries• Reconciliation• Multi User capability

CBNExtranet

Overall Structure

CIFTS

RTGS

TADParticipant

s

NIBSS (Low Value

System)

TADDiscount Houses

High Value Trx

Central Bank of Nigeria (CIFTS)

CBN ClearingHouses

CSCS Securities Settlement

T24 Core Banking

System

-Journals-Intraday Facilities-Liquidity transfer (SA <-> CA)

Current Trend of Large Value Payment System (LVPS)

Required Huge amount of liquidity for the participants every day to satisfy the

settlement

Required Huge amount of liquidity for the participants every day to satisfy the

settlement

Most of the payment instructions are entered into the RTGS at last minuteMost of the payment instructions are entered into the RTGS at last minute

Needs are arose to resolve the issues Needs are arose to resolve the issues

Since the RTGS settlement method is Gross base, each participant required huge amount needed a day to cover the payment instructions. And it becomes the burden of the participants.

It is tendency of the financial institution that they use fund as much as they can to earn earnings of the fund. It create 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.

Hybrid method is for the Liquidity Savings for the participants with Low Risk Factor

HYBRIDFor Liquidity Saving

Current Trend of LVPS

Raised Issues Against RTGS as LVPS

33

Ref: Payment System Operation Report of 2007 by Bank Of Korea (BOK)

Time (Hr)


Payment Entry by time (Sample)

Amount of TrxNumber of Trx

Unit: Billion KRW

Statistical Report: BOK-WIRE per 10 Min

Statistical Report: Hourly Settlement Rate against Total amount of Daily

Transaction

RTGS Hybrid

2000RTGS + Net (Offset)

To save the liquidity that needed by participants and promote the instruction entry time, the Hybrid Method of the RTGS function and DTNS function are employed for the LVPS recently. For example, Germany developed RTGS Plus system that employed RTGS and DTNS function into the system. Now the TARGET II system will be the Single Platform for the LVPS for the EU countries. TARGET II is hybrid system.

Not many countries are planning or started the project to convert their RTGS to hybrid system yet.


CountryName ofProduct

Live Run ofHybrid System

Germany RTGS Plus 2001. 11

Italy New BI_REL 2003. 6

Singapore MEPS+ 2006. 12

EU Target2 2008. 7

Japan RTGS-XG 2008. 8

Korea BOL-WIRE 2009. 9

Migration from RTGS to Hybrid LVPS

Settlement Risk Factor

Efficiency of Liquidity

RTGS Hybrid

DTNS

RTGS system has no Settlement Risk but the Efficiency of Liquidity is low

Hybrid System has no Settlement Risk factor and high Efficiency of Liquidity .

DTNS has high Liquidity efficiency and high settlement risk factor

High

Low

Low

High


Risk Factor of Hybrid LVPS

Types of Payment Instruction UsedTypes 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 ConditionsOffsetting 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

OthersOthers

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


Concept of Hybrid LVPS – TARGET2

RTGSSA

Queue

B Limit

M Limit

ExpressInstruction

LimitInstruction

Express Instruction:Time critical payment instruction

Limit Instruction:Not that Time critical instruction that can be offset.

Settlement Engine Module

Bilateral Offsetting:When new Limit Instruction entered, it triggers offsetting between the Originator and Receiver .

Multilateral Offsetting:At a time that setup, Multilateral (amongst all the participants) offsetting is processed

Bilateral Limit:Limit can be set for the counter party. This limit is used when bilateral offsetting process.

Multilateral Limit:This limit is for total limit.Limits are set by the participant to prevent over drawn their settlement account for the Express Instruction or to control their liquidity.


Concept of Hybrid LVPS

BusinessModule

(CallDvP OTC,Ordinary)

Offsetting

BilateralOffsetting

Multilateral Offsetting

Bilateral OffsettingBilateral Offsetting

Multilateral OffsettingMultilateral Offsetting

Bilateral offset is between the originator of the new payment instruction and the counter party (receiver) of the instruction.

Entry of a new Limit Payment Instruction triggers the offsetting between two participants

Multilateral offsetting is triggered by the Timer. The interval time can be setup by the central bank.

Multilateral offsetting involves all the queued instruction including Express and Limit instruction from all the participants.

A

B C

D E

A B


Offsetting Mechanism of Hybrid LVPS

Settle

RTGS

Test BilateralOffsetting

Centralized Queue

Monitoring, Reordering, Cancellation

Test MultilateralOffsetting

ExpressInstruction

LimitInstruction

Successful

Successful

Unsuccessful

Successful

Unsuccessful

Event Driven

Time Driven

Event Driven

Bilateral Offsetting Algorithm will run when one of the following event occurs:

1.Submission of new payment instruction

2.Increase of the Settlement Account, Limit,

3.Settlement, Reordering or Cancellation of first queued instruction.

Time Driven

Multilateral Offsetting Algorithm will run at designated time or time interval of the day. And it will also run at the end of day process.


Settlement Process of Hybrid LVPS

Payment Priority

RTGS Hybrid

Highly Urgent FIFO FIFO

Urgent FIFO FIFO

Normal FIFOFIFO can be breached


Rules of Settlements

Strict First-In First-Out (FIFO) PrincipleStrict First-In First-Out (FIFO) Principle

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.


Use of the Limits

Bilateral positionThe bilateral position from Bank A towards Bank B is defined as the sum of payments received from 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.

Bank A Bank B

Normal Paymentsto Bank B

Normal Paymentsto Bank A

Liquidity forSettling normal

Payments

Bilateral limit of Bank A vis-à-vis Bank B

Usable liquidityfor settlement with Bank B

Usable liquidityfor settlement with Bank B


Bilateral Limits

Effect of bilateral limitWith the bilateral limit, the direct participant restricts the use of liquidity when submitting normal payments for another direct participant.

Bank A Bank C,D,E…

Normal Payments

to Bank C,D,E…

Normal Paymentsto Bank A

Liquidity forSettling normal

Payments

Bilateral limit of Bank A vis-à-vis Bank C,D,E…

Usable liquidityfor settlement with Bank C,D,E…

Usable liquidityfor settlement with Bank C,D,E…


Multilateral positionThe multilateral position from Bank A is defined as the sum of payments (credits for 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 limitWith the multilateral limit, the direct PM participant restricts the use of liquidity, when submitting normal payments for any other direct PM participant for which a bilateral limit has not been set.

Multilateral Limits

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

Achievement of the Hybrid System


Case III : Hybrid LVPS in Other Countries – EU

Hybrid LVPS in European Union

• 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

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.

Target 2 in EU Central Bank

StandingFacilities

(SF)

Static Data Management

(SM)

Home Accounting Module (HAM)

Monitoring

Reserve Management

(RM)

ContingencyModule

(CM)

Information and Control Module (ICM)

Payment Processing

Payment Module (PM)

TARGET2 Hybrid System

Standard Interface

Internal Accounting

Credit Institution

(CI)

Ancillary Systems

(AS)

LVPS in European Union

Target 2 in EU Central Bank

TargetInterlinking

ParticipantInterface (Y-Copy)

Ancillary SystemsInterface

Module Functions

Payment Module (PM)

- Payment Processing- TARTGE Interface- Participant Interface (SWIFT Y copy)- Ancillary Systems Interface (ASI)

Standard Interface (SI)- Interface with Accounting System of the central bank- Collateral Management

Standing Facilities (SF) *- Overnight Deposit Accounts- Marginal Lending Accounts

Static Data Management (SM) - Parameter control module

Monitoring - Monitoring of the system

Reserve Management (RM) *

The Reserve Management Module (RM) enables the CBs to perform some not full functionality for the reserve requirements management.

* Optional for each Central Bank


Modules of Target 2 System

Module Functions

Home Accounting Module (HAM)

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

HAM accounts, according to the specific situation of each 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

Contingency Module (CM)

The use of the CM is only envisaged for the processing of critical and very critical payments in specific situations. These are:• Unavailability or inaccessibility of the SSP components.• The time needed for the activation of the alternate site/region lasts too long.

Information and Control Module (ICM)

Participants (credit institutions, ancillary systems, other participants and CBs) with comprehensive online information tools and easy-to-use control measures appropriate to their different business needs.


Modules of Target 2 System

SWIFTnet

PM ICM

TARGET2 Hybrid System

Participant

SWIFT Alliance 3rd Party Solution

SWIFTnetFIN Y copy

SWIFTnet InterAct & FileAct

Separately purchasedapplication


Transfer Mechanism using SWIFT net

Case IV : Hybrid LVPS in Other Countries - Korea

Current System Future System Current SystemBOK’s current Large Value Payment System is RTGS base. Web enabled client terminal for the participants

Future SystemBOK’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 of Server-to-Server interface is to facilitate straight through processing of the payment instruction. Current web enabled client lacks direct interface with core banking system of the participant

Current web enabled client will be still used for the participant who don’t want to have direct connection with payment system.

Information MonitoringParticipant can access the information from IM module.

Bank of Korea

Hybrid System for BOK

RTGS

Web Server

WebPC

WebPC

Bank A Bank B

Hybrid LVPS

Middleware for Server to Server

Server Server

BankingSystem A

BankingSystem B

IM

WebServer

Bank

WebPC

BOKExtranet

Participant ‘A’Web Terminal

Settlement Engine with Queue Management

This Module settle the instruction from each Business module

Business Module

Business modules for each different type of business

Web Application Server

Presentation layer

Web Terminal

Participant’s Terminal

Bank of Korea

BOK System – New Hybrid

KRW Fund Transfer DvP Call

CLS PvPManagementInformation

Module

Settlement Engine

Business Module

Interface Module

Settlement Engine

Queue Management

ASInterface

WebInterface

Host toHost

G/L

AncillarySystems

WebServer

Bank C’sCore

BankingSystem

Participant ‘B’Web Terminal

Basic Concept of Hybrid LVPS

TAD

HELPS®

Central Bank

ExtraNet

SWIFTNet

SWIFTAlliance

Suppliedby SWIFT

Providedby SWIFT Note: Using SWIFT Net is optional

and supported message type is only for the financial messages.

For Reports, Inquiries and othermessages needs to be purchasedseparately.

Standardapplication

Providedby CB

Standardapplication

Optional

Hybrid LVPS

Application Structure

• for Financial instructions processing (Payments)• for Control instructions processing• for Information monitoring

Client/Server base Participant End Workstation Client/Server base Participant End Workstation

SWIFT Interface (Optional)SWIFT Interface (Optional)

• for Financial instructions processing (Payments)• other function than financial instruction needs to be built separately by third party vendor

Participant End Workstation

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.

This web client is complete system to transact the Large Value payments

SWIFT Interface

SWIFT Interface is for the central bank who prefer to utilize SWIFT network for the intra country funds movement rather than using own network.

FOR THE LARGE VALUE PAYMENT SYSTEM, CLOSED USER GROUP NETWORK IS STRONGLY RECOMMENDED.

Hybrid LVPS

Client (Participant End) Workstation

Participant TAD

Participant TAD

CB Network

Settlement Module

Participant Module:Terminal Access Device (TAD)

Participant Alliance

Participant Alliance

SWIFT Net

Settlement Module

CB Alliance

Full Copy Full Copy Full CopyFull Copy

Participant Module:SWIFT Alliance

Payment instruction is reassembled at SWIFT

For information and control purpose, other SWIFT Network and special application is needed.

TAD has COMPLETE SETS of required functions

PSC Hybrid LVPS

Application Configuration

Conclusions

Implementation of LVPS

Items Description

Legal Framework• Well defined legal framework is necessary• 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

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 Workstation

• Standalone workstation application for the central bank’s

own network or

• SWIFT Terminal for the usage of SWIFT financial network

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

THANK YOU

Q and A

Economy & Finance

E Payment System Introduction Of Large Value Payment System