CLEARING AND SETTLEMENT SYSTEMS GENERAL ISSUES AND THE PHILIPPINE CASE. Mario B. Lamberte Philippine Institute for Development Studies

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1 CLEARING AND SETTLEMENT SYSTEMS GENERAL ISSUES AND THE PHILIPPINE CASE Mario B. Lamberte Philippine Institute for Development Studies

2 ASEAN DEBT SECURITIES Figure 1 Outstanding Total Debt Securities in US $, Latest Available Data ((In Million) 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Indonesia Malaysia Philippines Singapore Thailand

3 ASEAN DEBT SECURITIES Figure 2 Ratio of Total Outstanding Debt Securities to GDP, Latest Available Data (In %) % Indonesia Malaysia Philippines Singapore Thailand

4 ASEAN DEBT SECURITIES Figure 3 Distirubtion of Outstanding Debt Securities, Latest Available Data (In %) Indonesia Malaysia Philippines Thailand Private Government

5 PHILIPPINES: International bond issues Table 2.1 Value of Public Corporate Bonds* Issued in the International Market, In Million US Dollars Number of Public Corporations Value of Bonds prior to * Includes notes issuances Note: Figures include bond issuances of government banks in the international market but excludes those of the national g h/terry/bond

6 PHILIPPINES: International bond issues Table 2.1 Value of Private Corporate Bonds Issued in the International Market, In Million US Dollars Number of Private Value of Corporations Bonds prior to Source: Bangko Sentral ng Pilipinas

7 GENERAL BACKGROUND Functions of Payment System: Clearing process of transmitting, reconciling and in some cases confirming payment orders or security transfer prior to settlement Settlement act of transferring good and final funds between two parties. Types of Settlement: Designated-time net settlement (DNS) running balances are calculated on a bilateral or multilateral basis for each participant vis-àvis the other participants, and only net amounts are settled at prespecified times during the day. Real time gross settlement (RTGS) settlement of funds occurs on a transaction-by transaction basis continuously in real time w/o netting debits against credits

8 Figure 4 Gross vs. Net Settlement Systems 1 [In Pesos] Gross Settlement A 90(B) 20(A) B Due To: Due From: _ 90(C) 20(B) Clearing and 40(C) Transfers: 10 Value: Php (C) 100(A) Settlement 90 (A) C 90(A) 40(B) Bilateral Net Settlement A 70(B) B 10(C) Clearing and Settlement 40(C) 70(A) Transfers: 6 Value: Php120 Multilateral Net Settlement Transfers: 3 Value: Php110 A 10(A) 40(B) C 60 Clearing and Settlement B This is adopted from the Bank of Canada and the Department of Finance. C 50

9 GENERAL BACKGROUND Types of risk in a payment system Settlement risk Liquidity risk Credit risk Systemic risk Operational risk Security risk

10 GENERAL BACKGROUND Emerging payment services in industrialized countries Most countries have 2 or more funds transfer systems Some are dedicated to either retail or wholesale transactions, others accommodate both Large-value transfer system typically use RTGS Retail transfer systems typically use DNS RTGS tends to owned and operated by the central bank DNS tends to be owned and operated by private banks Most systems are centralized and apply full-cost pricing Some have central bank intra-day credit facility

11 ASEAN CLEARING AND SETTLEMENT SYSTEM Singapore: Dealers maintain book-entry system accounts with MAS Clearing & settlement system supports SGS market Transactions cleared T+1 on a DvP basis over MAS e-system Malaysia: Automated primary auction for GS Supported by RTGS called RENTAS Secondary trading of PDS: - unlisted PDS issued scripless - clearing & settlement executed electronically via the RENTAS

12 ASEAN CLEARING AND SETTLEMENT SYSTEM Thailand: GS issued scripless form and transferred BES Corporate bonds the same but cleared and settled at Thai Securities Depository Co. Dealers report to Thai Bond Dealing Centre all transactions Indonesia: Same as Thailand but traders not required to report transactions at the Over-the-Counter Fixed Income Service Scripless trading of securities

13 PHILIPPINE CASE Cheque clearing operations Bangko Sentral (BSP) regional clearing units Philippine Clearing House Corp. - owned and operated by private banks - clearing done electronically - uses multilateral netting system - settlement at the BSP

14 Figure 5 Cheque Payment: Clearing and Settlement BSP (Settlement) PCHC (Clearing) Payer s Bank Central Clearing Unit Payee s Bank Central Clearing Unit Branch Branch Payer Start of Cheque Delivery Payee Commodity Delivery : Information Flow : Payment Flow

15 PHILIPPINE CASE Phil. Domestic dollar transfer system (PDDTS) Jointly operated by bankers association, PCHC, and Citibank-Manila Electronic funds transfer facility for dollar funds Participants have settlement accounts in $ with Citibank-Manila Accommodates both RTGS and end-of-day batch netting system

16 Figure 6 Philippine Domestic Dollar Transfer System: Direct Credit Transfer (Netting Sub-system) CITIBANK MANILA (Settlement) PCHC (Clearing) Payer s Bank Central Clearing Unit Payee s Bank Central Clearing Unit Branch Branch Payer Payee Commodity Delivery : Information Flow : Payment Flow

17 PHILIPPINE CASE Electronic Peso Clearing System (EPCS) Owned and jointly operated by bankers association and PCHC Funds transfer facility from one bank to another on the same day Also use for the peso side of deals done at the Philippine dealing system Same as PDDTS multilateral netting system except BSP acts as the settlement bank instead of Citibank-Manila

18 Figure 7 Electronic Peso Clearing System: Direct Credit Transfer (Netting Sub-system) BSP (Settlement) PCHC (Clearing) Payer s Institution Central Clearing Unit Payee s Institution Central Clearing Unit Branch Branch Payer Payee Commodity Delivery : Information Flow : Payment Flow

19 PHILIPPINE CASE Multi-transaction Interbank Payment System (MIPS) Operated by bankers association and PCHC in coordination with BSP Electronic multilateral net clearing system used for large value interbank call loan transactions and bank transfers Replaced in July 2001 by a system approximating an RTGS system transactions pass through PCHC for verification and authentication and settled at the BSP

20 PHILIPPINE CASE Phil. Payment System (PhilPaSS) new system: Operated by BSP Adopted the RTGS solution of the UK-based Logica Settlement at the BSP Future plans: - include bank settlements for GS - can be linked with PSE for real-time settlement of stock transactions using the DvP mode

21 PHILIPPINE CASE Government securities facility: GS issued in scripless form and kept at the Registry of Scripless Securities (RoSS) at the Bureau of Treasury Primary auction done electronically Settlement at the BSP on a DvP mode Secondary market: - recording and transfers done through the RoSS - end-of-day matched trades sent to BSP for settlement (DvP thru netting but same-day-settlement)

22 PHILIPPINE CASE Fixed Income Securities Exchange: Planned for implementation by bankers association Will initially accommodates GS and later private securities Will be linked up with PSE s Philippine Central Depository (PCD) system for custodianship of securities and clearing and settlement

23 PHILIPPINE CASE Philippine Central Depository, Inc. (PCD) Started operating in 1997 Owned by bankers association and PSE Facility for securities in certificated and uncertificated form Transfer on a book-entry-system (BES) Currently supporting trades at the PSE (stocks) Also provides registry and clearing & settlement infrastructure services to issuers of fixed income securities

24 PHILIPPINE CASE Securities Clearing Corporation of the Phil. (SCCP) Licensed to operate Jan Owned by PSE and banks A clearing and settlement agency for depository eligible trades executed in the PSE Guarantees settlement of trades PCD provides SCCP the infrastructure to effect DvP settlement

REAL TIME GROSS SETTLEMENT (RTGS) SYSTEM AND ITS IMPLICATIONS FOR CENTRAL BANKING

REAL TIME GROSS SETTLEMENT (RTGS) SYSTEM AND ITS IMPLICATIONS FOR CENTRAL BANKING Wilhelmina C. Mañalac, Agnes M. Yap and Magno Torreja, Jr. Introduction A payments system comprises the cultural, political,