Strategies for Improving Payment and Settlement ......Strategies for Improving Payment and...

© 2016 NTT DATA, Corporation

Strategies for Improving Payment and Settlement Infrastructuresadopting advanced and proven technologies

including international standards- Challenges and Opportunities aiming at Year 2020 and beyond -

Wednesday 28 September 2016 Community Session

© 2016 NTT DATA Corporation 2

Program on Wednesday 28 September 201615:30 A brief introduction of speakers by Dr. Taiji Inui, ADB Consultant and NTT Data

15:35 Presentations- How do standards improve the market infrastructure in Europe? by Mr. Marc Bayle, ECB- One year operation of New BOJ-NET which adopted the state of the art technologies

including international standard ISO 20022 by Mr. Hiromi Yamaoka, BOJ- Future payment systems in particular Fedwire both Funds and Securities by Mr. Ken

Isaacson, Fed NY- One year of T2S operation – the road ahead by Mr. Jochen Metzger, Deutsche Bundesbank

16:20 Q&A16:30 Closing

3© 2016 NTT DATA Corporation

Mr. Marc Bayle de Jessé, Director General, Directorate General Market Infrastructure & Payments, European Central Bank

Before assuming the current duty, he managed the T2S Programme as T2S ProgrammeManager and has earlier handled dossiers related to the promotion of market integration and the definition of the Eurosystem’s operational framework, focusing in particular on payment systems and market infrastructure aspects. He has authored publications on the market infrastructure integration process and on related issues, such as the euro repo market. He is an active member of European and international working groups in this field, including in the role of Chairman, and maintains close links with the industry. Before joining the ECB he worked for ten years at SICOVAM S.A. (now EuroclearFrance), in particular as Adviser to senior management. He graduated from CERAM with a master’s degree in Finance, having specialised in audit and post-market infrastructure.

Speaker


Mr. Hiromi Yamaoka （山岡浩巳）Director-general, Payment and Settlement Systems Department, Bank of Japan

Before assuming the current duty, he experienced various positions in the Bank including Representative in Paris, Head of Economic Analysis in the Research & Statistics Department, Senior Economist in Policy Planning Office and Head of Large Bank Surveillance in the Financial System & Bank Examination Department, Alternate Executive Director for Japan in the IMF and member of the Basel Committee on Banking Supervision. He also served as Director General of the Financial Markets Department.Mr. Yamaoka graduated from the University of Tokyo with an LL.B. in 1986. He also holds an LL.M. from University of California (Berkeley) Boalt Hall School of Law (1990). He has been admitted to New York Bar.

Speaker


Mr. Ken Isaacson, Senior Vice President and Wholesale Product Manager, Federal Reserve Bank of New York

He is Head of Fedwire Funds, Fedwire Securities, and National Settlement Services on behalf of the Federal Reserve System. As Faster Payments Strategist, he led the Federal Reserve Faster Payment Task Force's effort to develop, approve, and publish criteria for the evaluation of faster payment capabilities in the United States. He chaired the Future Payments Team, a body established to lead research and analysis in support of Federal Reserve System's initiative to improve the payments system in the United States. He was lead author for the Federal Reserve's Strategies for Improving the Payment System Paper (Jan 2015) and the Federal Reserve's Consultation Paper for improving the payment system in the United States (Sep 2013).

Speaker


Mr. Jochen Metzger, Director General of Payments and Settlement Systems at the Deutsche Bundesbank

He is responsible for all the Bundesbank’s banking and clearing operations including the development and running of T2 and T2S. He is also a member of the Eurosystem’s Market Infrastructure Board (T2 and T2S), the G20-Committee on Payments and Market Infrastructures (CPMI) and the Committee for Cooperative Oversight of CLS. Since January 2015 he chairs the CPMI Working Group on Correspondent Banking and was responsible for the final Report on Correspondent Banking published by the CPMI on 13 July 2016. He is also member of the Financial Stability Board’s Coordination Group on Correspondent Banking (CBCG) chairing its workstream #4 on strengthening tools for due diligence by correspondent banks.

Speaker


Dr. Taiji Inui（乾泰司）ADB Consultant, Senior Manager, NTT DATA Corporation, and Associate Partner, NTT DATA Institute of Management Consulting, Inc.

He is ADB Consultant for ABMF SF2 and CSIF under the ASEAN+3 Finance Ministers and Central Bank Governors’ Meeting. He was Head of Payment Policy Division of the Bank of Japan before joining NTT DATA Corporation. He was a member of Group of Computer Experts and Working Party on Security Issues of Bank for International Settlement (BIS). He was also a secretariat of IT Directors Meeting (ITDM) of Executive Meeting of East Asia and Pacific Central Banks (EMEAP) after establishing it.

Moderator

How do standards improve the market infrastructure in Europe?

28 September 2016Sibos Geneva

[Please select][Please select]

Marc Bayle de Jessé

Director General

Market Infrastructure & Payments

European Central Bank

Rubric

www.ecb.europa.eu © 9

Standards and market infrastructure

Efficiency and reliability

Cross-border integration

Global interoperability

Rubric


ISO 20022 in EuropeTARGET2-Securities (T2S)pan-European platform for securities settlement built on ISO20022

Rubric


TARGET2real-time gross settlement system migration to ISO 20022 in the upcoming years

ISO 20022 in Europe

Rubric


Vision for the futureDrawing on the synergies between TARGET2 and T2S

• Improve efficiency by technical consolidation of the two platforms

• Ensure easier access to all Eurosystem services via harmonised interface

• Enhance RTGS services in line with technological developments and market needs

• Align the use of messaging standards

• Cut down operational costs

• Increase cyber resilience

Rubric


Global standards

Different national procedures Streamlined procedures

Rubric


Thank you for the attention

www.ecb.europa.eu/paym

ECB: market infrastructure and payments

@T2SECB

http://www.ecb.europa.eu/paym

One year operation of New BOJ-NETwhich adopted the state of the art technologies including international standard ISO20022

Hiromi YamaokaDirector-General, Payment and Settlement Systems Department

Bank of Japan

September 28, 2016

15

BOJ-NET (1988-)

DVP (1994-)

RTGS(2001-)

RTGS XG(Phase 1 : Oct. 2008, Phase 2 : Nov. 2011)

New BOJ-NET(Phase 1 : Jan. 2014, Phase 2 : Oct. 2015)

Next-Generation RTGS (RTGS XG): A) Liquidity-saving features (LSF),B) Incorporating Forex-Yen Clearing and large-value

Zengin payments into BOJ-NET (RTGS)

In 1964 when “narrow gauge” (1067mm) was widely used as railway track in Japan, “Shinkansen” super-express adopted “standard gauge”(1435mm).Indeed, “standard gauge” has led to a great success because (a) it has enabled high-speed transportation,

(210km/h<1964>⇒320km/h<now>)(b) and it is now used globally.

ISO20022 also!

16

BOJ-NET(Bank of Japan Financial Network System)

（the number of direct participants: around 500)

Fundｓ Transfer Servicesthe number of transfers: around 69,000/day

the amount of transfers: around 136 tril.JPY/day(2015)

JGB Servicesthe number of transfers: around 18,000/day

the amount of transfers: around 102 tril.JPY/day(2015)

RTGSDVPLiquiditySavingsetc.

17

Advanced Information Technology

High Flexibility

• Using XML and ISO20022 for greater interoperability• Being able to extend operating hours without

mechanical constraints.

Accessibility

New BOJ-NET - main features -

18

Users’ Benefits Efficient Cash Management

Efficient Collateral Management

Smoother JGB Settlement

..and infinite possibility in future(cross-border linkage, etc.) 19

Timetable of New BOJ-NET <Funds Transfer Services> <JGB Services>

8:30 AM *

9:00 PM

* On the last business day of each month, the BOJ-NET opens at 7:30 AM.

“Core Time” All users have to keep connecting with the BOJ-NET.

9:00 AM

5:00 PM **

** Core time of Funds Transfer Services for Foreign Exchange Yen Settlement ends at 3:00 PM.

4:30 PM

During the operating hours other than “Core Time”, any users can use the BOJ-NET afterthe coordination with their counterparties.

When the BOJ extended the BOJ-NET operating hours up to 9 PM on February 2016, theBOJ maintained “Core Time”.

20

Bank X(NY)

Bank Y(NY)

Bank X(London)

Bank Y(London)

Bank X(Tokyo)

Bank Y(Tokyo)

FX swapusing USD

and JPY

(EST 6:30)

(GMT11:30)

(JST20:30)

Payment instruction (USD)

Payment instruction (JPY)

Transfer on the BOJ-NET (JPY)

Transfer on the Fedwire(USD)

BOJ-NETFunds Transfer

ServicesBank X（Tokyo）

Bank X

Bank Y

Customer C（Overseas）

Bank Y（Tokyo）

（X’s account）

（Y’s account）

Transfer on the BOJ-NET

（C’s account）

（A’s account）

（B’s account）

Customer A（Overseas）

Customer B（Tokyo）

(1) Same-day remittance in JPY for customers in Asia and Europe

(2) Same-day FX swap using JPY and USD

Business Application of New BOJ-NET Funds Transfer

(Overseas) (Tokyo)

21

ICSD or global custodians

Sub custodian

Intra-group adjustments of JGB holdings

Securities firmX

＜Japan＞

Securities firmX

BOJ-NET JGB services

Sub custodian


Local bankA

Local bankA

＜Overseas＞

(vi)

1) Cross-currency repo against JGB collateral 2) Posting of JGB collateral to foreign CCPs

(i)

(ii)(v)

Securities firmX

(iii)

(iv)

Securities firmX

(iv)’

(iii)’


Sub custodian

Information sharing

Securities firmX

＜Japan＞

Securities firmX

BOJ-NET JGB services

Sub custodian


CCP

CCP

＜Overseas＞

(iii)

(iv)

Securities firmX

(v)

Securities firmX

(i)

(ii)

Business Application of New BOJ-NET JGB Services

22

“In taking both possible benefits and costs in account, the Bank willcontinue to consider the most appropriate way to provide its centralbank accounts and BOJ-NET from both “time” (i.e. operating hours ofthe BOJ-NET) and “space” (i.e. eligibility criteria of the Bank’saccounts), so as to contribute to the overall economy.”

Hiroshi Nakaso, Deputy Governor of the Bank of Japan, “Central Bank Policy on Financial Market Infrastructure”

Speech made at the Conference on Retail Payments on May 12, 2016

BoJ’s Strategy- toward maximizing the utility of BOJ-NET

in terms of both time and space.

23

BOJ formed the industry forum in August 2013 to discuss the effective use ofthe BOJ-NET and the possibility of further extension of its operating hours.

--- The BOJ extended its operating hours up to 9pm(JST) / 12pm (GMT) fromFebruary 2016. This extension enables a half day overlap with European market.

--- The Forum consists of 25 financial institutions and 9 industrial associations.

The BOJ will continue to assess whether and to what extent the operating hoursof the new BOJ-NET should be extended.

Time Perspective

24

•CLSにおいて、北米通貨・欧州通貨・アジア通貨間

の為替取引を約定日と同日中に決済するための新たな枠組みを検討中。

BOJ-NET

Bank A Head office’sBOJ-NETterminal

Bank AHead office

Bank ALDN subsidiary

Status as Bank AHead office’s

BOJ-NET terminal

Bank ANY branch

Status as Bank AHead office’s

BOJ-NET terminal

JPY JPY JPYJGBs JGBsJGBs

Settle JPY and JGBs seamlessly around the clock

Space Perspective (1)Global Access - future landscape

25

26

ABMF SF2 Policy Recommendations― Adoption of international standards －

ISO 20022 for message standard ISO 9362 (BICFI) for financial institution identification ISO 6166 (ISIN) for securities numbering ISO 3166-1 for country code, and ISO 4217 for currency code

Source: Wikipedia

(2)Cross-border DVP Linkages – ASEAN (Association of South‐East Asian Nations) +3 Initiatives

Source: CSIF

ISO 20022 messages

Central Bank RTGS (A)

DVP

CSD (B)

Central Bank RTGS (B)

Cross- currencyDVP

CSD (A)

CSD-RTGS Linkage

DVP

Country A Country B

PVPParticipant

RTGS(A)

ParticipantCSD(A)

ParticipantRTGS(B)

ParticipantCSD(B)CSD LinkGW

GW GW

GW

ISO 20022 messagesISO 20022 messages

Grand Design

27

28

Why is “Asian Bond Market” strongly needed?- Economic Development of Asian Countries -

Income per Capita

Rate of Growth

matured

developing

Economic Developments

29

Income per Capita

Rate of Growth

matured

developing

…And Financing

FinancingInvestmentAsia

DevelopedEconomies

Asia

FinancingInvestment

Return

30

Implementation phase 1

2015-2016Implementation phase 2

2017-2018Implementation phase 3

2019-2020Integration phase

2020-

Develop standard message flows and items

Specifying essential user requirements

Develop CSD-RTGS linkages

Defining detailed user requirements, design, coding, and

testing

Implement CSD-RTGS linkages

Starting production operation of CSD-

RTGS Linkages

Implement integrated solution

Developing a central hub and connecting

each CSD system and RTGS system with the

hub

Roadmap for Establishing a Regional Settlement Intermediary

Source: “Progress report on establishing a regional settlement intermediary and next steps: implementing CSD-RTGS linkage in ASEAN+3 region”published by Asian Development Bank in May 2015

Developing local currency bond markets across the region, so as to allow the region’s large savings to be channeled to finance its own investment needs.

Developing infrastructure that promotes cross-border securities transactions in Asia.

Cross-border DVP Linkages – ASEAN+3 Initiatives

31

00

Japan

Europe

Bank A Bank B

BOJ-NETJPY funds

Bank A Bank B

BOJ-NETJGBs

Bank A Bank BEUR

European currency funds

Bank A Bank B

Securities settlement systemEuropean bonds

DVP DVP

Example 1 Example 2

JPY

European currency

Central bank money (RTGS)

RTGS system

Bank A Bank BBOJ-NET

JPY fundsBank A Bank B

BOJ-NETJGBs

DVP

Cross-border DVP

Current domestic DVP

JPY

Cross-border DVP Linkages –future design -

32

Blockchain and Distributed Ledger Technology (DLT) have potential to be usefulinfrastructure, especially when the chain of trust has to be established from scratch.

Blockchain, DLT and Central Bank FMI

Centralized system operated by

a trusted entity

De-centralized

system

De-centralized

system

Nonetheless, if there is a fully-trusted entity, it would be rational to make full use of it.

Centralized and de-centralized systems can co-exist!

Central banks should be credible!

Central banks should be attentive to new technologies! 33

Thank you for your attention!

34

Strategies for Improving Payment & Settlement InfrastructuresAdopting advanced and proven technologiesincluding international standards

Sibos Conference - 28 September 2016 Ken IsaacsonSenior Vice President and Wholesale Product Manager

Federal Reserve Bank of New York

36

Topics

• The Modernization of High-Value Payment Systems• Security & Resiliency• Strategies for Improving Payment Systems• National Settlement Service - Expanded Hours• ISO 20022 Implementation

37

The Modernization of High-Value Payment Systems• High-value systems are challenged by aging infrastructure.• Many central banks are in the midst of modernizing this infrastructure, including:

– Switzerland, Japan, Canada

• The Federal Reserve completed the key elements of its Fedwire modernization initiative in November 2015.

– Transformed the technology supporting the Fedwire businesses from legacy to strategic platforms.

– Positioned Fedwire to be quicker to market in service to customers and in support of policy interests.

– Currently evaluating post-modernization vision for Fedwire Funds and Securities, including desired enhancements.

38

Security & Resiliency

• Successful completion of the Fedwire Modernization Program has created the organizational bandwidth to focus resources on the security and resiliency of wholesale services.

• A variety of activities are underway to protect the wholesale services from existing and emerging threats related to –

– Cyber-threat resiliency; and – Traditional resiliency.

39

Strategies for Improving Payment Systems• Payment systems are evolving and a number of central banks and other authorities are

engaging in formal market consultation exercises to explore opportunities for improving domestic payment infrastructures.

– Canada, England, Europe, US

• Through the Strategies for Improving the US Payment System (SIPS) paper, the Federal Reserve is engaged in a multi-year effort to enhance U.S. payment systems in the areas of –

– Speed;– Efficiency;– Security;– Cross-border functionality; and– Collaboration across services.

40

National Settlement Services –Expanded Hours• Industry consultation in the U.S. has revealed a demand for expanded hours for

interbank settlement.• The Federal Reserve is pursuing a three-phase process for expanding the

hours of its multilateral interbank settlement functionality.─ Phase 1 – Expanded operations by 1.5 hours per day (Completed

January 2015).

─ Phase 2 – Capability to open the settlement window beginning at 9 p.m. ET the prior calendar day (Completed December 2015).

─ Phase 3 – Exploring the technology, infrastructure, and operational changes required to support weekend and/or 24 x 7 operating hours (2016 and beyond).

41

ISO 20022 Implementation• ISO 20022 is being adopted by an increasing number of the world’s payment, clearing &

settlement systems.– Japan, India & China are live with ISO 20022.– Switzerland, Europe & Canada are planning to adopt ISO 20022.

• Standard message formats for wire transfer payments provide opportunities for:– Richer data (e.g., purpose codes, extended remittance information).– Easier compliance with evolving regulatory requirements. – Efficiencies from a common format instead of multiple proprietary formats (e.g.,

reduced mapping & market practices). – Improvements in interoperability given a global economy.– Enhanced services to clients.

42

ISO 20022 Implementation (cont’d)

• In 2014, the Federal Reserve Banks and The Clearing House announced an intention to adopt ISO 20022 payment messages for the Fedwire® Funds Service and CHIPS ® wire transfer systems.

Detailed Planning

(2016/2017)

Finalize planning & announce

format specifications

(2017)

Application development

& internal testing (2018)

Fedwire/CHIPS customer testing

(2019)

Fedwire/CHIPS begin

production rollout (2020)

Rollout complete &

sunset legacy format (TBD)

One year of operation – the road aheadJochen Metzger, Deutsche Bundesbank

T2S phased migration approach

September 2016

Jochen Metzger

June 2015 March 2016 September 2016

Wave 122.06.2015

• SIX SIS (CH)• BOGS (GR)• Malta Stock

Exchange (MT)• Depozitarul

Central (RO)• Monte Titoli (IT)

Wave 228.03.2016

• Interbolsa (PT)• NBB SSS (BE)

Wave 312.09.2016

• Euroclear ESES (FR, NL, BE)

• VP Securities (DK)

• VP Lux (LU)

Wave 406.02.2017

• CBF (DE)• Lux CSD (LU)• Keler Hungary

(HU)• KDD Slovenia

(SL)• CDCP

Slovakia (SK)• OeKB (AT)

Wave 518.09.2017

• Iberclear (ES)• Euroclear

Finland (FI)• Baltic CSDs

(EE, LT, LV)

~ 40 % T2S settlement volume ~ 60 % T2S settlement volume

September 2016

T2S statistics August/September 2016

September 2016

Jochen Metzger

T2S Outlook: future challenges

September 2016Jochen Metzger

Full T2S migration completed by September 2017

• February 2017: wave 4 will add another 40 % of T2S settlement volume

• September 2017: remaining T2S-markets will migrate their securities settlement business

to T2S nearly all European securities transactions settled in central bank money will

be processed via T2S

Permanent functional enhancements

• Driven by changes requested mostly from market participants (i.e. in total more than 600

change requests up to now, four releases in between the migration waves)

• Changes driven by regulatory requirements (e.g. CSDR requirements regarding settlement

discipline regime)

Scope Extension: other European markets onboarding T2S (e.g. DK foreseen for

autumn 2018)

Broader outlook (I)

September 2016

Jochen Metzger

Vision 2020 for Eurosystem market infrastructure based on ISO 20022

Possible technical design of the “T2-family” for the Eurosystem market infrastructure

Broader outlook (II)

Further harmonisation and standardisation to be expected on global level regarding

services, language, time zones interlinking of RTGS systems becomes possible

Correspondent bankers will need to climb up the value chain i.e. by providing value

added services

October 2015

Jochen Metzger

Thank you very much!Jochen MetzgerDeutsche BundesbankDirector General of Payments and Settlement SystemsWilhelm-Epstein-Straße 1460431 Frankfurt / MainGERMANYPhone: +49 69 9566-2228 or 2226 E-mail: [email protected]


What are the benefits and risks to adopt new technologies in particular ISO 20022?

Question 1


When ISO 20022 will be globally accepted and implemented?

Question 2


Questions from floor

Could you tell your name and institution you belong to before asking your question, please?

53

“Fedwire” is a registered service marks of the Federal Reserve Banks. “ISO” is a registered service mark of the International Organization for Standardization. “CHIPS” is a registered service mark of The Clearing House Payments Company L.L.C. The Federal Reserve Banks do not sponsor, endorse, or recommend (or provide any warranties, express or implied, regarding) any third party products or services referenced in this presentation.

© 2016 NTT DATA Corporation

This PowerPoint slides are made solely for discussions at the Sibos on Wednesday 28th September 2016. Views including questions are those of the moderator and do not necessarily reflect NTT DATA Corporation or any other organizations. 54

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