TM CH12 CLEARING AND SETTLEMENT SYSTEMS

Inter-Bank Call Loan System

. To fill the gap during the crucial transition period into a real-time gross settlement, PCHC also conducted an ________________ (from trade matching to batch posting of the banks' reserve position)

letter of credit

A bank issues a _______________ to guarantee the payment to the seller, essentially taking responsibility that the seller will be paid. A buyer must prove to the bank that they have enough assets or a sufficient line of credit to pay before the bank will guarantee the payment to the seller.

FALSE. A few clearing institutions compile net transfer information to settlement institutions not only before their cutoff times but several times per day, which allows for settlement speeds similar to those of gross settlement systems. The cost of net settlement transactions is LOW, so lower-value transactions are usually settled through these systems.

A few clearing institutions compile net transfer information to settlement institutions not only before their cutoff times but several times per day, which allows for settlement speeds similar to those of gross settlement systems. The cost of net settlement transactions is high, so lower-value transactions are usually settled through these systems. true or false

liquidity

A key requirement for the successful completion of payment is sufficient _______________ on both the payer and the payer's bank levels. In the context of payment processing, it refers to the availability of funds for the transfer.

FALSE. After the trade and prior to settlement, the purchaser's rights are contractual and hence personal. As a result, if the seller becomes insolvent, the purchaser's rights are at stake. After settlement, the BUYER is the owner of the securities, and their rights are exclusive.

After the trade and prior to settlement, the purchaser's rights are contractual and hence personal. As a result, if the seller becomes insolvent, the purchaser's rights are at stake. After settlement, the seller is the owner of the securities, and their rights are exclusive. true or false

Automated Clearing House or ACH

An _________________ is a multilateral legally binding agreement that lays down the clearing and participation rules for a particular payment stream to facilitate electronic fund transfers among its participants. Payment streams that are covered by a multilateral ACH promote greater

clearing switch operator or CSO

Another principle under the NRPS framework is that each ACH shall have only one __________________, whose operations shall be limited to clearing and other services that do not compete with services offered by PSMB members

real-time gross settlement (RTGS)

As online processing has risen, particularly for high-value payments, banks are required to transition to the continuous settlement of their interbank positions. This is accomplished in __________________ through rapid bookings on settlement accounts. If there are insufficient funds for reservations, the corresponding transactions are queued or discarded.

net settlement systems gross settlement systems.

Banks prefer to use ______________ because payments processed through them require greatly reduced funds transfers (and therefore considerably less liquidity) than ______________

clearing

In banking and finance, _________ refers to all processes between the time a transaction commitment is made and the time it is settled.

true

Clearing and Settlement Systems These systems are fundamental to the efficient operation of global financial systems. They facilitate the movement of money between banks and other entities to satisfy payment obligations resulting from economic and financial activities across the whole economy. True or false

correspondent

Clearing and settlement systems are generally organized around individual countries or economic regions. Banks located within these areas can have an account with the local clearing and settlement institution; settlement takes place between the accounts of the banks held at the clearing institution. Banks located outside of these areas do not have such an account, so must use a local bank as a _______________ bank that handles payment instructions on their behalf.

netting

Deferred settlement systems sometimes feature _________________, which balances payment responsibilities across or among participating financial institutions, therefore typically decreasing the amount of settlement money required

clearing and settlement systems payments

In _____________, the banks of the payer and beneficiary exchange information regarding monetary transfers; the result of this exchange is ________________ between the banks.

settlement

Following a trade, _____________ involves the distribution of securities or cash from one party to another. Once the this procedure is completed, payments are final and irrevocable

1. Availability of funds 2. Technical issues 3. Human error 4. Financial regulations 5. Possibility of scams

Here are the main issues associated with ACP, ACH, and CHIPS:

Real-time settlement delayed settlement

In essence, settlement is divided into two broad categories. ______________ is when settlement between participants in a payment system happens almost concurrently with payment message clearance (s). In contrast, ___________________ often takes place at the conclusion of a preset settlement cycle or at an agreed point in time (e.g., the end of the business day), once the payment message(s) have been cleared

Article 315

In the Philippines, there are two laws which criminalize and punish the issuance of bouncing checks. The first is under _________________ of the Revised Penal Code which punishes for estafa a person who issues a check in payment of an obligation when he had no funds in the bank sufficient to cover the amount of the check

depository financial institutions

Payments are made to the benefi ciary ' s banks (also known as receiving _______________), which in turn pay the benefi ciaries. Payments between banks associated with different ACH operators are settled on a gross basis

net

Payments can also be on a ____________ basis, where a large number of transactions are accumulated and offset against each other, with only the net differential being transferred between banks. Payments handled through a this settlement system usually wait until the end of the day, when all transactions between the banks are summarized and offset against each other by a clearing institution; the clearing institution then sends the net transfer information to the settlement institution, which executes the transfer of funds between banks.

gross

Payments can be on a ___________ basis, where each bank pays the total amount owed. Payments handled through thid settlement system are more likely to have a requirement for immediate execution, where payment instructions are processed separately for each individual transaction. The cost of transactions is high, so individual transactions running through these systems tend to involve larger amounts of funds or be very time sensitive

originating depository financial institution

The ACH process flow is for a company to submit an electronic fi le to its bank (also known as the _________________), containing payment information; the bank lets these submissions accumulate until the end of the day. At that time, it directly pays any of the authorized items with a book transfer if the recipient has an account with the bank. If not, the bank batches and forwards the remaining payment authorizations to its designated ACH operator (usually a regional branch of the Federal Reserve, or the Electronic Payments Network).

Philippine Clearing House Corporation (PCHC)

The ______________ was legally formed and co-equally owned by all the listed banks of the Bankers Association of the Philippines (BAP) in July 1977. . It is reported that it was the first ever Automated Magnetic Ink Character Recognition (MICR) Cheque Clearing House in Southeast Asia when it started operating way back on June 06, 1980.

Fedwire system

The _______________ is a gross settlement system that is operated by the U.S. Federal Reserve and processes large - value items with same - day, real - time settlement. Nearly all U.S. banks and the agencies of foreign banks participate in this system.

AUTOMATED CLEARING HOUSE ( ACH ) SYSTEM

The ________________ is the net settlement system used for electronic payments in the United States, and is used by most banks in the country. This system is used for large - volume, low - value payments, such as payroll direct deposits, business - to - business payments, dividends, tax payments, and Social Security payments.

Philippine Clearing House Corporation (PCHC)

The corporation gained the title of the exclusive check-clearing service provider in the country which mainly serves as the highlight of its existing operational existence. They provide check clearing services in sixty-nine regions that process 704,000 clearing items daily from the 9,000 participating banks nationwide.

clearing and settlement debit credit

The general concept of ________________ is for the banks of the paying party (the payer) and the receiving party (the beneficiary) to exchange information regarding monetary transfers, resulting in the transfer of funds between the two banks. The banks, in turn, _____________ the account of the payer and ___________ the account of the beneficiary.

Cheque Clearing System

The main objective of the PCHC was to use MICR-encoded checks to automate the _______________. In order to arrive at clearing balances, the banks had to manually process, classify, and tabulate an ever-increasing volume of items into the previous system's tally sheets.

FALSE The process flow for a Fedwire payment is for a paying company to transmit payment instructions to its bank, which debits the paying company ' s account and forwards the payment instructions on to the Federal Reserve (Fed). The Fed then debits the paying bank ' s account at the Fed and CREDITS the account of the beneficiary bank at the Fed. Finally, the beneficiary ' s bank CREDITS the account of the beneficiary

The process flow for a Fedwire payment is for a paying company to transmit payment instructions to its bank, which debits the paying company ' s account and forwards the payment instructions on to the Federal Reserve (Fed). The Fed then debits the paying bank ' s account at the Fed and debits the account of the beneficiary bank at the Fed. Finally, the beneficiary ' s bank debits the account of the beneficiary. True or false

correspondent bank

The term __________________refers to a financial institution that provides services to another one—usually in another country. It acts as an intermediary or agent, facilitating wire transfers, conducting business transactions, accepting deposits, and gathering documents on behalf of another bank.

prior

There is some risk for a bank using CHIPS because it is not being paid until the end of the day but could make funds available to its customers ____________ to the end of the day; if a bank owing it money were to fail, the bank would then have no means of recovering the funds already paid to its customers. Banks control this risk by imposing intraday credit limits on their transactions with each other

true

Through secure interbank payment networks that clear and settle many daily transactions, banks are able to send and receive wire transfers in a matter of minutes. True or false

low - value payment,

Transaction Types Another payment type is the __________________ which does not require immediate execution and tends to be for smaller amounts. Because of the reduced need for immediate execution, these payments are handled through a net settlement system

high - value payment

Transaction Types One such type is the _____________________, which must be executed immediately. Because of the time constraint, this cannot wait for end - of - day netting, and so are settled on a gross basis, with an immediate cash transfer between banks

FALSE. Under the National Retail Payment System (NRPS) framework, any two (2) members of the Payment System Management Body (PSMB) can come together and create an ACH.

Under the National Retail Payment System (NRPS) framework, any 3 members of the Payment System Management Body (PSMB) can come together and create an ACH. true or false

estafa.

When a check was issued in payment of a debt contracted prior to such issuance, there is no ____________

Settlement

__________ timing is based on the payment date specified by the payer in the ACH file submitted to its bank. A company can deliver ACH debit instructions that are no earlier than one banking day prior to the settlement date, while ACH credits can be delivered no earlier than two banking days prior to the settlement date. If the ACH fi le is delivered too late to settle on the specified date, then the ACH operator will use the next business day as the settlement date.

Clearing

____________ is the process by which financial transactions are settled, that is, the transfer of funds to the seller and securities to the buyer in a timely manner. Typically, a specialized organization operates as the intermediary and performs the roles of the tacit buyer and seller to reconcile orders between transacting parties when this occurs

Automated Cheque Processing (ACP)

_____________ is a component of the ACH that enables same-day cheque clearing.

Clearing

______________ in its broadest sense guarantees that deals are resolved in line with market rules, even if a buyer or seller becomes bankrupt prior to settlement.

Clearing settlement

_______________ is all of the steps involved in transferring funds ownership from one party to another except for the final step, which is _____________ which involves the finalization of a payment, so that a new party takes possession of transferred funds. The treasurer should be aware of these processes in order to understand the timing of payment transfers.

Settlement

_______________ is the delivery of securities in order to finalize transactions. It includes transforming personal rights into property rights, thus protecting market players from the danger of counterparty default.

Domestic banks

________________ generally use correspondent banks to gain access to foreign financial markets and to serve international clients without having to open branches abroad.

Real-time liquidity

______________________checks are becoming the standard at both levels to reduce credit risks

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c. Issued Checks and Its Clearing

page 292 sa book

check clearing

CLEARING HOUSE INTERBANK PAYMENTS SYSTEM ( CHIPS )

is a net settlement system that is operated by the Clearing House in New York, which in turn is owned by a group of banks. It settles primarily foreign exchange and eurodollar trades, with total daily volume exceeding $1 trillion.

CLEARING HOUSE INTERBANK PAYMENTS SYSTEM ( CHIPS )

it accumulates payment instructions throughout the day, and then calculates the net payment to be paid by each bank in the system. The net payment is then made through the Fedwire system. This system is designed for high - value payments, and can also transmit remittance information along with payment instructions.