Upload
lucy-hunter
View
214
Download
0
Embed Size (px)
Citation preview
Granularity Limited
April 2001 1
International Payment Systems Week 2001
Granularity Ltd
Kathleen [email protected]
April 2001
Granularity Limited
April 2001 2
International Payment Systems Week 2001
Sensible Technology
Compelling Need
Model Validation
An Elegant Solution
Granular Payment Control
Payment Risk Reduction
Next Steps
Granularity Limited
April 2001 3
International Payment Systems Week 2001
Compelling Need
•The Payments Business•Problems in Payments
Granularity Limited
April 2001 4
International Payment Systems Week 2001
The Payments Business
Domestic Payments
Foreign ExchangeSettlements
CLS&FXNet-eligibleSettlements
50%
36%
14%
Granularity Limited
April 2001 5
International Payment Systems Week 2001
The Payments Business• $4 trillion in daily payments • 2000 banks dominate payment
flows Wide variety of internal
hierarchies Wide variety of technical and
management processes• 40 currencies actively traded• Each currency has different
payment systems different platforms, different data formats, different language characters
• Multicurrency systems very complex
Bank BBank A
Client A Client B
Payment System
A B
Granularity Limited
April 2001 6
International Payment Systems Week 2001
Problems in Payments
•Liquidity “Hoarding”•Liquidity gridlock•Liquidity uncertainty•Credit uncertainty•Periodic major crises
operational failures (Bank of New York)defaults (Barings, Drexel)
•Poor system controls and integration•Fragmented management hierarchies
Payment System
Bank A Bank B
A B
Granularity Limited
April 2001 7
International Payment Systems Week 2001
An Elegant Solution
•The Granularity Solution•Advantages of Granular Payments Control
•Payment Banks & Users•Granularity Network Overview•Payment Bank Filter Integration•The Filter Process•Improved Information•Backward Compatibility
Granularity Limited
April 2001 8
International Payment Systems Week 2001
The Granularity Solution
•Addresses risk on two-way flows in a currency with the same counterparty on the same day (e.g. pay $1 billion and expect $800 million)
•Real-time controls on risk of paying but not receiving
•Real-time window on payment flows during the day
•Suspend & Reinstate capability
Granularity Limited
April 2001 9
International Payment Systems Week 2001
Advantages of GPC•Each bank controls its payment risk and liquidity risk independently
•Effective for all counterparties•Effective for all currencies•Comprehensive for all payments •Simple•Unilateral•Low Cost ($250,000 or less basic fee)•Complementary to netting and CLS
Granularity Limited
April 2001 10
International Payment Systems Week 2001
Payment Banks & Users•Payment Banks buy Filter Module
implements Clean Payment Limits improves payments transparencypowerful correspondent service
•Users buy User Interfacecomprehensive tool for risk reductionClean Payment LimitsSuspend & ReinstateOverridesperiodic and real-time reportingflexible account & counterparty structures
Granularity Limited
April 2001 11
International Payment Systems Week 2001
Network Overview
VPN
User Interface
Router
Routers
Reuters
ATT
S.W.I.F.T. IP Network
Fedwire
CHIPS
Target
LVTS
BOJ-NET
SIC
EBA
FEYCS
CHAPS
Domestic Payment Systems
Routers
Payment Bank Filter Module
Granularity Core System
USD
USD
EUR
EUR
JPY
JPY
CHF
CAD
GBP
Granularity Limited
April 2001 12
International Payment Systems Week 2001
Payment Bank Filter Integration
Liquidity/Payments Manager
Queue
ClearingFunds?
AccountFunds?
Gateway to Payment System
OK
NO
NO
YES
YES
Granularity Limited
April 2001 13
International Payment Systems Week 2001
Payment Bank Filter Integration
Liquidity/Payments Manager
Payment Bank Host Application
Queue
ClearingFunds?
AccountFunds?
Gateway to Payment System
OK
Filter Process Module
FAILNO
NO
YES
YESPASS
Application P
rogramm
ing Interface
Granularity Limited
April 2001 14
International Payment Systems Week 2001
GPC Filter Process
PASSNONO
YES
RE
JEC
T&
Not
ify
& C
AC
HE
Is Payment Type listed?
IDENTIFY Payment
Type
NO
YESIDENTIFY
Payment Amount
Is Payment Amount less
than Available Balance?
YES
CALCULATE Available Balance
(REVISE) & STORE Available Balance &
CACHETransaction
NO
Account Holder a User or 3rdParty?
Is Payee or Intermediary a Counterparty?
IDENTIFY Account Holder
IDENTIFYPayee &
Intermediaries
YES
NO
FOR EACH
YES Override forTRN or
Counterparty?
YES
Is Counterparty Suspended?
NO
Granularity Limited
April 2001 15
International Payment Systems Week 2001
Improved Information•Payment Banks gain
real-time information on liquidity allocation and usage
much finer detail on payments behaviour
metrics for liquidity pricing•Users gain
on-demand and periodic reportsalerts to intraday problems and shortfalls
Granularity Limited
April 2001 16
International Payment Systems Week 2001
Backward CompatibilityNO CHANGES TO LEGACY PROCESS FOR
•Trading•Confirmations•Matching•Payment Instruction & Pre-Advice•Payment Confirmations•Payment Reconciliations•Domestic Payment Systems•Netting (and CLS)
Granularity Limited
April 2001 17
International Payment Systems Week 2001
Sensible Technology
•Low risk as a design objective•Web Technology Components
Granularity Limited
April 2001 18
International Payment Systems Week 2001
Low Risk as a Design Objective
•Pre-existing, proven components selected for basic architecture
•Applications will use pre-existing standards: SWIFT and ISO data elements, data formats and objects as available in repositories
•Solution design minimises integration task and project risk for Users and Payment Banks
Granularity Limited
April 2001 19
International Payment Systems Week 2001
Technology Components
•Internet protocol network with VPN/PKI security
•Browser Interface for ease of use and low integration costs
•Platform independent languages•XML data format protocol and ebXML compliance
•Application to application data interchange (XML/EDI)
Granularity Limited
April 2001 20
International Payment Systems Week 2001
Model Validation
•Banks and Central Banks•Software & Technology Vendors•The Granularity Advisory Board
Granularity Limited
April 2001 21
International Payment Systems Week 2001
Banks and Central Banks
•Opinion-leaders at major banks targeted first
•4 central banks offer “no objection”•30 banks consulted for product validation•Follow-up meetings with senior department executives and operations teams
Granularity Limited
April 2001 22
International Payment Systems Week 2001
Software & Technology Vendors
•4 vendors of Payment/Liquidity Management Software consulted
•All are interested in adapting their solutions to integrate to the Payment Bank API as an upgrade feature
•Minimises integration task for Payment Banks using vendor solutions
Granularity Limited
April 2001 23
International Payment Systems Week 2001
The Advisory Board
•Chaired by Richard Goulding•Top ranking individual experts on risk management, payments and operations from leading banks
•Comfort factor for banking industry•Best practice, marketing and product development guidance
Granularity Limited
April 2001 24
International Payment Systems Week 2001
Payment Risk Reduction
•Credit Risk•Liquidity Risk•Systemic Risk•Operations Risk•Multicurrency Impact
Granularity Limited
April 2001 25
International Payment Systems Week 2001
GPC and Credit Risk•Credit risk is capped at the Clean Payment Limit in each currency
•Intraday notification of payment failure enables rapid remedial action
•Real-time suspension of payments in all currencies cuts forward risk from 3 days (Allsopp) to less than one day
Granularity Limited
April 2001 26
International Payment Systems Week 2001
GPC and Liquidity Risk•Liquidity risk is capped at the CPL•Fixed, knowable risk can be covered by liquidity or credit facilities
•Intraday notification of shortfall•Shortfall can be funded while the money market and payment system are still operating
•Contingent payment failures should become extremely rare
Granularity Limited
April 2001 27
International Payment Systems Week 2001
GPC and Systemic Risk•Default losses should be survivable to financial counterparties
•Operations failure impact limited•Intraday remedial measures should prevent contingent payment failures
•Fixed, knowable loss avoids effects of uncertainty, rumour and speculation on trading markets
•Local liquidity and credit problems should not spread as rapidly through global markets
Granularity Limited
April 2001 28
International Payment Systems Week 2001
GPC and Operations Risk
•GPC Systemhot-offsite back-up and full resiliency
worst case failure results in status quo payments processing
•GPC compatible with multiple nostros in each currency
•GPC limits impact of operations failure on payment processing
Granularity Limited
April 2001 29
International Payment Systems Week 2001
Multicurrency Risk Reduction
0
20
40
60
80
100
120
US
Do
llar
Eur
o
Ye
n
Ste
rling
Aus
. Do
llar
Sin
g. D
olla
r
Me
x. P
eso
Ma
l. R
ing
git
Gross Payments
CPLs
Values are illustrative only
Granularity Limited
April 2001 30
International Payment Systems Week 2001
Next Steps
•First Round Funding•Requirements & Prototype Development
•Beta Bank Selection•Applications Development & Testing
•Live Operations•Controlled Scaling
Granularity Limited
April 2001 31
International Payment Systems Week 2001
Sensible Technology
Compelling Need
Model Validation
An Elegant Solution
Granular Payment Control
Payment Risk Reduction
Next Steps
Granularity Limited
April 2001 32
International Payment Systems Week 2001
Questions