Chapter 3 Settlement, netting and clearing

Question 1

Money settlement

Answer 1

Transferring money from one account to another

Question 2

Clearing institutions

Answer 2

Intermediary that assumes the role of receiver to the paying bank and payer to the receiving bank. Banks must become member

Question 3

Multilateral netting

Answer 3

Offsetting payments against each other (pay and receive 1 amount)

Question 4

Cut-off times

Answer 4

Time until a payment instruction can be processed by central banks

Question 5

Settlement of securities

Answer 5

Custodian

Question 6

Settlement of interbank transactions

Answer 6

Central Bank

Question 7

Settlement of customer transactions

Answer 7

Bank

Question 8

RTGS

Answer 8

1. A system that transfers on individual basis
2. Operated by central banks
3. Processes high value payments (short notice)

Question 9

Clearing system

Answer 9

1. Simultaneously processing / net settlement
2. Operated by other institutions than central banks
3. Low value payments

Question 10

Target2

Answer 10

1. Euro RTGS system

2. Cutoff time 6 pm

Question 11

Fedwire

Answer 11

1. US RTGS system

2. Cutoff time 6.30 pm

Question 12

Chaps

Answer 12

1. UK RTGS system

2. Cutoff time 4.20 pm

Question 13

BOJ-net

Answer 13

1. Japan RTGS system

2. Cutoff time 4 pm

Question 14

SIC

Answer 14

1. Switserland RTGS system

2. Cutoff time 4.15 pm

Question 15

Euro1

Answer 15

1. Euro Clearing system

2. Cutoff time 4 pm

Question 16

Chips

Answer 16

1. US Clearing system

2. Cutoff time 5 pm

Question 17

BACS

Answer 17

1. UK Clearing system

2. Cutoff time 10:30 pm

Question 18

Zengin

Answer 18

1. Swiss Clearing system

2. Cutoff time 2.30 pm

Question 19

Settlement risk

Answer 19

Risk that one of the parties hasn’t settled (FX Spot transactions)

Question 20

CLS-bank

Answer 20

Diminishing settlement risk with FX transactions by acting as a central party that processes simultaniously

Question 21

CLS-bank currencies

Answer 21

USD, CAD, AUD, NZD, EUR, GBP, CHF, SEK, DKK, NOK, JPY, HKD, SGD, KRW, ZAR, MXN, ILS

Question 22

CLS-bank phases

Answer 22

1. Instructions and pay-ins (before 6.30 am)
2. Settlement within CLS-bank (7 to 9 am)
3. External settelement (until 10 am Asia/Pacific, until 12 am Europe/US)

Question 23

Payment netting

Answer 23

1. MT 370
2. Ofsetting payments with same currency, same counterparty and same value date
3. To decrease settlement risk
4. Should have a netting agreement

Question 24

CSD

Answer 24

Central Securities Depository: save-keeping of securities (such as central bank for cash settlement)

Question 25

Examples of CSD

Answer 25

Euroclear and Clearstream

Question 26

Subcustodians

Answer 26

Holding a account at CSD on behalf of their clients (=every bank that you can do securities business with)

Question 27

Global custodians

Answer 27

Holds accounts with almost all CSD's, such as BNP Paribas/ ABN Amro Clearing

Question 28

OTC securities transactions

Answer 28

1. Bilaterally executed 2. Settlement is T+2 (cross-border T+3) 3. SSI's sent by both parties to their custodian

Question 29

DVP

Answer 29

Delivery vs payment: custodian checks if both accounts can be debited

Question 30

FOP

Answer 30

Free of payment: af delivery of securities which is not linked to a corresponding transfer of funds