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Payment SystemsFrom 1999 to 2000 the number of VP transactions more than doubled. The joint European payment system, TARGET, has been in operation for two years. Use of the system is increasing steadily, and TARGET has become the standard system for large cross-border payments. In 2000 a scheme was introduced to reimburse TARGET participants for any losses in connection with system downtime. Danmarks Nationalbank is developing a new system for payments in kroner and euro, KRONOS, which in time will become the Danish interface to the TARGET system. Internationally there is growing awareness of safety and efficiency in relation to payment and securities settlement systems. Krone payment systemsThe Nationalbank is the settlement bank for four payment systems in kroner. The Nationalbank makes available accounts via which the participants exchange payments. Table 7 presents the turnover of the krone payment systems. Table 7 Krone payment systems
The DN Inquiry and Transfer System is the Nationalbank's RTGS[1] system in which krone payments are settled individually and registered immediately[2]. This system is used primarily for large payments. The number of transactions has been relatively stable in recent years, while the average transaction size is still increasing. The sum clearing system handles retail payments via e.g. Dankort (debit card), cheques and BetalingsService (direct debit). The system is owned by the Danish Bankers' Association and operated by PBS. The sum clearing system is a net settlement system. PBS calculates the net positions of the banks vis-à-vis each other, and the amounts are settled via the banks' accounts with the Nationalbank. Far more transactions pass through the sum clearing system than through the DN Inquiry and Transfer System, but the individual payments are considerably smaller. The number of transactions is increasing steadily, while the average transaction size remains relatively constant at approximately kr. 5,000. The VP System is the system of VP A/S - The Danish Securities Centre, for settlement of trades and other securities transactions. At fixed times each day the participants' net positions in terms of both securities and money are calculated. Net positions in securities are exchanged between the participants' VP safekeeping accounts, while net positions in money are exchanged via accounts with the Nationalbank. The number of trading transactions in VP increased significantly from 1999 to 2000. Especially the number of share trades has increased, while the number of bond trades has generally remained stable. As share trades are typically considerably smaller than bond trades, the average traded amount fell from 1999 to 2000. Trades in options and futures are settled by the FUTOP Clearing Centre via accounts with the Nationalbank. The system used for settlement was restructured in November 2000, so that trade in and clearing of Danish futures and options now takes place in the Swedish derivatives system. Net positions calculated in the Swedish system are settled by the Danish participants and the FUTOP Clearing Centre using the DN Inquiry and Transfer System. The restructuring of the FUTOP system was related to the steadily decreasing turnover in the Danish derivatives market. Euro payment systemsDanish banks can effect payments in euro via several payment systems, depending on the type of payment. Retail euro transactions can be settled via the sum clearing with separate calculation of the banks' net positions in euro. Sum clearing in euro adheres to the same principles as in kroner, but the turnover in euro is moderate compared to the turnover in kroner. Sum clearing has only domestic participants, and it is therefore not possible to settle cross- border retail payments in euro. Securities trading in euro is handled via the VP System. As for sum clearing, trades in euro are settled according to the same principles as trades in krone. The volume of transactions in euro is relatively moderate. Cross-border securities trades may be settled in VP via VP's links to securities centres abroad. Debes and Target The TARGET system has been in operation for two years. Use of the system increased steadily throughout 1999 and 2000, with regard to both the number of transactions and total transaction value, cf. Table 8. The TARGET system has made it easier to process large cross-border payments and has become the standard system for such payments. Table 8 Transaction volumes in Target and Debes
In overall terms, less than half of the transaction volume in TARGET relates to cross-border payments, as the system is also used for domestic payments in euro. This average conceals considerable variation among the EU member states, where the use of TARGET varies greatly according to their need to process domestic payments in euro and the existence of alternative euro payment systems. In Denmark's case, TARGET/DEBES is used predominantly for cross-border payments. The same applies to the other member states that do not participate in the euro, while the large EU member states which have adopted the euro use the TARGET system for domestic payments in euro to a very large extent. The central banks are improving the TARGET system on an ongoing basis. In November 2000 the system was thus adapted to the new transparency directive requirements in connection with cross-border customer payments[4]. In order to improve the participants' access to information on the status of the national RTGS systems interfaced with TARGET, a new information tool was introduced on 23 October 2000. Participants can now retrieve electronic information on subcomponents of TARGET – e.g. whether the national RTGS systems are open or closed, or on any problems and when they are expected to be solved. This information tool supplements, but does not replace, the existing national communication channels. In the first two years, TARGET's opening and closing days were fixed on a year-to-year basis. Now a long-term TARGET calendar has been introduced. TARGET is closed on Saturdays and Sundays, New Year's Day, Good Friday, Easter Monday, 1 May, Christmas Day and Boxing Day. An innovation is that the national RTGS systems must now be closed on TARGET closing days. Target reimbursement scheme For TARGET participants from non-euro-area EU member states the upper limit to interest on overnight deposits is abolished. If participants have an overnight deposit which is larger than the amount on which interest is normally payable – owing to the TARGET system being down – interest is payable on the entire deposit. The additional interest normally payable for overnight overdrafts at the Nationalbank is also disregarded. The reimbursement scheme is described in the publication Documentation Basis for Payment Systems in Euro (in Danish), which can be downloaded from the Nationalbank's Web site. Cross-border collateral In the spring of 2001 the European Commission is expected to present a draft collateral directive. The directive will improve the framework for cross-border provision of collateral within the EU. The proposed directive will enhance the provisions for protection in the Directive on settlement finality in payment and securities settlement systems[5] to include bilateral outstandings. KronosThe Nationalbank is developing a new RTGS system, KRONOS, which is expected to be ready in the 4th quarter of 2001. KRONOS will replace both the DN Inquiry and Transfer System[6], which dates from 1981, and DEBES. The banks will thus gain a combined krone and euro payment system. KRONOS will be the participants' home banking system at the Nationalbank. Participants (banks and mortgage-credit institutes, stockbroking companies, etc.) can send payments in kroner to other participants in Denmark, or payments in euro to TARGET participants in Denmark and elsewhere in Europe, on an ongoing basis. Participants will also be able to transfer funds between their own accounts with the Nationalbank and to view statements of account, queued payments, news, etc. on-line. Participants will be able to send payments via a Web-enabled graphic user interface on their own PCs or via SWIFT[7]. This makes it easier to integrate KRONOS with the participants' own payment systems. KRONOS will include a number of functions giving participants better liquidity-management facilities than the present systems. Payments are queued automatically if there are insufficient funds to effect them. When the disposable amount is increased, the queue is automatically checked and payments are effected. It will also be possible to submit orders for later payment. In addition, a mechanism will be introduced to facilitate payments settlement in situations where liquidity is tight (a gridlock solution). Several other RTGS systems in TARGET have introduced similar mechanisms. KRONOS will meet the requirements which the future international currency settlement system, CLS, sets for acceptance of a currency. The Danish krone is expected to be included in CLS. A description of CLS is presented in the 1998 Annual Report p. 79. Payment systems in an international perspectiveThe central banks' international work in the field of payment systems during the past decade has focused particularly on promoting safety and efficiency in payment systems.[8] In June 2000 the central banks of the G-10 countries published the final version of a report on safety and efficiency in payment systems, Core Principles for Systemically Important Payment Systems [9]. The report sets out ten Core Principles for systemically important payment systems and four principles for the role and responsibility of the central banks in this respect. The Core Principles report is an update of the Lamfalussy report, which is the basis for assessment of payment system risks in most parts of the world and is a benchmark for the objectives to be met by payment systems. The new Core Principles extend further than the Lamfalussy standards. For example, they focus on issues such as management structures and payment system efficiency. The report concentrates on payment systems, but the G-10 central banks are working with the IOSCO[10] to prepare an equivalent report for securities settlement systems[11]. More than 100 central banks worldwide, including the Nationalbank, have adopted the standards and are working to implement them.[12]The standards are also parameters of the IMF's Financial Sector Assessment Program, cf. p. 90ff. Footnotes[1] RTGS = Real-Time Gross Settlement. [2] For a more detailed description of the types of payment systems, see Danmarks Nationalbank, Annual Report and Accounts 1998, p. 75. [3] Trans-european Automated Real-time Gross settlement Express Transfer system. [4] EC Directive 97/5/EC on cross-border credit transfers. [5] European Parliament and Council directive 98/26/EC of 19 May 1998. The directive was implemented in Denmark with effect from 1 May 2000 (Act no. 283 of 26 April 2000). [6] In addition to payment elements which will be replaced by KRONOS, the DN Inquiry and Transfer System comprises a number of other functions, e.g. securitised lending, which will be retained in the DN Inquiry and Transfer System. [7] SWIFT = Society for Worldwide Interbank Financial Telecommunication. [8] The role of the central banks in this connection is called oversight. BIS defines oversight as ”a central bank task, principally intended to promote the smooth functioning of payment systems and to protect the financial system against possible 'domino effects' which may occur when one or more participants in the payment system incur credit or liquidity problems. Payment systems oversight aims at a given system (e.g. a funds transfer system) rather than individual participants." Oversight of payment systems is part of the central banks' general work to ensure financial stability. [9] The Report can be downloaded from www.bis.org. [10] International Organisation of Securities Commissions, the international cooperation between a number of authorities responsible for supervising securities markets. [11] In January 2001 G-10/IOSCO submitted a draft report for consultation. The draft report can be downloaded from www.bis.org. [12] For further discussion of the standards see Tobias Thygesen, International Standards for Payment Systems, Danmarks Nationalbank, Monetary Review, 1st Quarter 2001. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Version 1.0 March 2001 Nationalbanken. |