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Introduction to SWIFT

Introduction to SWIFT. FIRMA Conference. Dennis Goodenough Senior Business Manager, SWIFT 18 April 2011. Agenda. Overview History Governance Membership Organization Oversight Products Figures Standards Securities Payments and cash management Q & A. SWIFT history. First Sibos

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Introduction to SWIFT

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  1. Introduction to SWIFT FIRMA Conference Dennis GoodenoughSenior Business Manager, SWIFT 18 April 2011

  2. Agenda • Overview • History • Governance • Membership • Organization • Oversight • Products • Figures • Standards • Securities • Payments and cash management • Q & A Introduction to SWIFT - FIRMA - 18 April 2011

  3. SWIFT history First Sibos 1978 FirstOperating Centreopens 1976 First corporates join SWIFT 1996 Asia 1980 Securities 1987 SWIFTNet live 2001 1970s 1980s 1990s 2000+ 1973SWIFTfounded 1977 SWIFTgoesLive 1986Value-Added services 1996 Volumesexceed 3M messages/day 2004SWIFTNetmigrationcomplete 1979NorthAmerica Introduction to SWIFT - FIRMA - 18 April 2011

  4. SWIFT - Governance National Bank of Belgium and G-10 Central Banks Oversight Governance Board Board committees National member groups National user groups SWIFT members SWIFT community Introduction to SWIFT - FIRMA - 18 April 2011

  5. Bank of Canada Deutsche Bundesbank European Central Bank Banque de France Banca d' Italia Bank of Japan De Nederlandsche Bank SverigesRiksbank Swiss National Bank Bank of England The Federal Reserve System (USA), represented by the Federal Reserve Bank of New York and the Board of Governors of the Federal Reserve System Oversight: Co-operating central banks from the G-10 countries Lead overseer: National Bank of Belgium Introduction to SWIFT - FIRMA - 18 April 2011

  6. SWIFT - User categories Supervised Financial Institutions Closed User Groups/ Corporates Introduction to SWIFT - FIRMA - 18 April 2011

  7. SWIFT – A customer-centric user community Banks Corporates Payment Systems Clearing & SettlementSystems InsuranceCompanies GovernmentInstitutions Broker-Dealers Customer Stock Exchanges Securities MI’s Depositories Payments MI's Trustees IMI's Introduction to SWIFT - FIRMA - 18 April 2011

  8. SWIFT – Members (shareholders) • Eligible shareholders: • Banks • Broker/dealers • Investment Management Institutions • Non-shareholding member – threshold of five shares • Upon joining, the organisation can buy one share or opt out until the next re-allocation of shares Introduction to SWIFT - FIRMA - 18 April 2011

  9. Countries’ organisation • National Member Groups • All SWIFT shareholders within same country • Advisory role for membership matters: local admission criteria and new users • Nominate Directors who are then appointed by the shareholders • National User Groups • All SWIFT users within same nation • Advisory role for operational and technical matters Introduction to SWIFT - FIRMA - 18 April 2011

  10. SWIFT – Board of Directors Board of Directors Banking & Payments Committee Securities Steering Committee Standards Committee Technology and production Committee Community input Audit & Finance Committee Human Resources Committee Introduction to SWIFT - FIRMA - 18 April 2011

  11. Oversight • SAS 70 report • Self assessment of performance against the overseers’ High Level Expectations for SWIFT Introduction to SWIFT - FIRMA - 18 April 2011

  12. Data Protection • Data Privacy Working Group • SWIFT group • 12 experts in data privacy from EU, US, Australia, Canada • Review policies • Contractual Policies • Commitment to the confidentiality and protection of users data • Data retrieval policy, Personal Data Protection Policy • Available on swift.com • Audited • SAS70 Introduction to SWIFT - FIRMA - 18 April 2011

  13. Data Retrieval Policy • Principles • Traffic data: limited usage permitted, for billing, pricing, market and service analysis • Message data: strictly confidential, usage and disclosure must be permitted by customers or required for problem investigation • Exceptions • Collective request: request of message data by, for example, a market infrastructure, for statistical purpose • Mandatory request: legally enforceable request by a judicial, administrative, governmental or other competent authority Introduction to SWIFT - FIRMA - 18 April 2011

  14. Platform – the SWIFT product stack SWIFT Solutions Payments Treasury Securities Trade Standards Rules Directories & Information services Messaging services Testing Services & Prof Svcs Interfaces Secure IP Network (SIPN) Secure, reliable and resilient platform Introduction to SWIFT - FIRMA - 18 April 2011

  15. SWIFT in figures Introduction to SWIFT - FIRMA - 18 April 2011

  16. SWIFT in figures (January 2011 YTD) • > 4.0 billion messages per year • 9,693 customers • 210 countries and territories • ~ 2,000 employees • Average daily traffic 17.2 million messages • Peak day of 18.9 million messages – 1 March 2011 • Note: SWIFT does not ‘own’ the data contained in messages it transports Introduction to SWIFT - FIRMA - 18 April 2011

  17. SWIFT standards • SWIFT sets standards because a common language for international financial transactions: • Improves automation • Ensures human understanding of the data • Reduces errors • Helps save costs • SWIFT message standards are recognised by the International Organisation for Standardisation (ISO) • SWIFT works with the financial community to coordinate standards convergence worldwide and avoid unnecessary duplication Introduction to SWIFT - FIRMA - 18 April 2011

  18. FIN message categories 4ISO 15022 • Category 1 – Customer Payments & Cheques (16 messages) • Category 2 – Financial Institution Transfers (16 messages) • Category 3 – Treasury Markets – Foreign Exchange, Money Markets & Derivatives (26 messages) • Category 4 – Collections & Cash Letters (18 messages) • Category 5 – Securities (67 messages) • Category 6 – Treasury Markets – Metals & Syndications (19 messages) • Category 7 – Documentary Credits & Guarantees (29 messages) • Category 8 – Travellers Cheques (11 messages) • Category 9 – Cash Management & Customer Status (21 messages) • Category 0 – Service and System Messages (66 messages) 53ISO 15022 Name of Presentation – Confidentiality: External

  19. StandardsThe current and future message landscape • Payments, Cash and Trade (127 messages) • Securities, FX and Derivatives (160 messages) • Payments, Cash and Trade (111 messages) • Securities, FX and Derivatives (112 messages) • - including 57 ISO 15022 messages • Service & System Messages (66) 287 completed messages 346 live messages Payments, Cash, Trade and Cards • Payments, Cash and Trade (132 messages) • Securities, FX and Derivatives (173 messages) Securities, FX and Derivatives > 300 messages in progress Name of Presentation – Confidentiality: External

  20. ISO 20022 messages 287 completed messages • Securities, FX and Derivatives • Settlement & Reconciliation (29) • Corporate Actions (13) • Investment Funds • Securities Trade (30) and Settlement (16) • Reference Data (3) and Acct Mgmt (5) • Securities Management (7) • Cash Management (6) • Funds Processing Passport (2) • Other Securities • Securities Transaction Regulatory Reporting (4) • Proxy Voting (8) • Issuers’ Agents Communication (22) • Foreign exchange and OTC Derivatives • Non-Deliverable Forwards (7) • Currency Options (4) • Generic (4) Payments, Cash, Trade and Cards • Payments and Cash Management • Account Management • Change/Verify Account Identification (3) • Bank Account Management (15) • Payments Initiation • Initiation (4) • Mandate (4) • Creditor Payment Activation Request (2) • Payment Clearing and Settlement (6) • Cash Management • Bank-to-Customer Cash Management (3) • Notification to Receive and Account Reporting Request (4) • Exceptions and Investigations (17) • Trade • Trade Services Initiation • Invoice Financing Request (3) • Financial Invoice (1) • Trade Services Management (50) • Cards and Related Retail Financial Transactions • Acceptor to Acquirer Card Transactions (15) 127 messages 160 messages Name of Presentation – Confidentiality: External

  21. ISO 20022: The standards community 68 financial professionals from 21 countries and 12 liaison organizations • Registration Management Group, RMG • Overall governance, court of appeal • Approve business justifications for new standards • Create Standard Evaluation Groups (SEGs) • Standards Evaluation Groups, SEGs • Represent future users in specific financial areas • Validate candidate message standards • Registration Authority, RA • Ensure compliance with the standard • Maintain and publish ISO 20022 Repository • Technical Support Group, TSG • Assist RMG, SEGs, RA and submitting organizations Introduction to SWIFT - FIRMA - 18 April 2011

  22. ISO 20022 messages 287 completed messages • Securities, FX and Derivatives • Settlement & Reconciliation (29) • Corporate Actions (13) • Investment Funds • Securities Trade (30) and Settlement (16) • Reference Data (3) and Acct Mgmt (5) • Securities Management (7) • Cash Management (6) • Funds Processing Passport (2) • Other Securities • Securities Transaction Regulatory Reporting (4) • Proxy Voting (8) • Issuers’ Agents Communication (22) • Foreign exchange and OTC Derivatives • Non-Deliverable Forwards (7) • Currency Options (4) • Generic (4) Payments, Cash, Trade and Cards • Payments and Cash Management • Account Management • Change/Verify Account Identification (3) • Bank Account Management (15) • Payments Initiation • Initiation (4) • Mandate (4) • Creditor Payment Activation Request (2) • Payment Clearing and Settlement (6) • Cash Management • Bank-to-Customer Cash Management (3) • Notification to Receive and Account Reporting Request (4) • Exceptions and Investigations (17) • Trade • Trade Services Initiation • Invoice Financing Request (3) • Financial Invoice (1) • Trade Services Management (50) • Cards and Related Retail Financial Transactions • Acceptor to Acquirer Card Transactions (15) 127 messages 160 messages Name of Presentation – Confidentiality: External

  23. SWIFT in Securities Introduction to SWIFT - FIRMA - 18 April 2011

  24. Securities standards on FIN (MTs) • There are 67 category 5 securities messages, covering the following business areas: • Pre-Trade / Trade (trade initiation and confirmation) • Settlement & Reconciliation (settlement instructions, confirmations and statements) • Corporate actions (asset servicing) • Securities lending and borrowing • Collateral • Securities industry players also widely use payments, cash management (categories 1 and 2) and foreign exchange messages (category 3) Introduction to SWIFT - FIRMA - 18 April 2011

  25. MT 502 block Order MT 513 Advice of Execution MT 514 Allocation (1) 300 MT 515 Confirmation (1) 300 MT 543 DeliverAgainst Payment MT 541 ReceiveAgainst Payment Client 1 = 300 shares MT 509 Status (optional, to DK) MT 541 Receive Against Payment MATCH Securities settlement – a typical scenario Investment manager Broker dealer PEFIGB22 BDAPGBPP Custodian CSD GLOBGB22 CRSTGB22 Introduction to SWIFT - FIRMA - 18 April 2011

  26. MT 502 block Order MT 513 Advice of Execution MT 514 Allocation (1) 300 MT 515 Confirmation (1) 300 MT 544ConfirmationDelivery MT 543 DeliverAgainst Payment MT 541 Receive Against Payment Client 1 = 300 shares MT 509 Status (optional, to DK) MT 541 Receive Against Payment MT 545 Confirmation Receipt Custodian a/c Broker a/c MATCH Securities settlement – a typical scenario Investment manager Broker dealer PEFIGB22 BDAPGBPP Custodian CSD GLOBGB22 CRSTGB22 Shares $$$$ Introduction to SWIFT - FIRMA - 18 April 2011

  27. MT 545 Confirmation Receipt MT 544 ConfirmationDelivery MT 543 DeliverAgainst Payment MT 541 ReceiveAgainst Payment Client 1 = 300 shares MT 541 Receive Against Payment MT 545 Confirmation Receipt Client 1 a/c Custodian a/c Broker a/c Shares MATCH $$$$ Securities settlement – a typical scenario 1 MT 502 block Order 2 MT 513 Advice of Execution Investment manager Broker dealer 3 MT 514 Allocation (1) 300 PEFIGB22 BDAPGBPP 4 MT 515 Confirmation (1) 300 9 8a 5b 5a 6 7 Custodian CSD GLOBGB22 CRSTGB22 8a + Shares - $$$$ Introduction to SWIFT - FIRMA - 18 April 2011

  28. NEW Trade matching on Accord MT 3xx messages OTC Equity & Fixed Income Transactions FX & currencyoptions For Prime & Executing Brokers and Custodians Loans and deposits Accord for Securities Accord for Treasury OTC derivatives Community driven + 450 customers Live since May 2009 Independent of counterparty

  29. Accord for Securities – Prime/Executing BrokerSolution for hedge fund transactions Executing Broker Hedge Fund 2. Real time status updates + exception handling on GUI + full reporting in MT 998 2. Real time status updates + exception handling on GUI + full reporting in MT 998 MT515 Daily Trade report MT 998 MT515 Accord MT 998 Prime Broker 1. Automated pre-matching, 4. Settlement OK 3 . PSET agents’ local code is x-ref to a BIC in Accord Custodian FAIL! Custodian Agent Agent CSD (PSET) Introduction to SWIFT - FIRMA - 18 April 2011

  30. Copies of non-SWIFT data: fax, e-mail, e-FX portals, Broker feeds, Reuters, etc. Accord for TreasurySingle-slide overview FX, FX Options, Money markets, OTC Derivatives, Commodities Deal Confirmations: (MT 300,305,306,320, 330,340,341,360, 361,362,392, MT 600) • Accord Subscribers (>475 in 70 countries) • Banks • Brokers • Custodians • Fund mgrs • Corporates(strong growth) Accord subscriber or non- subscriber SWIFT Copies of confirmations • Real-time reporting & exception handling • Integration available for variousBack-Office Systems • Accord • Real-time Confirmation Matching Service • Availability of >99.97% last 5 years • >90K msgs/hour observed matching capacity • Common matching rules + user-defined rules • Financial Liability for Matching results Introduction to SWIFT - FIRMA - 18 April 2011

  31. SWIFT in Payments and Cash Management Introduction to SWIFT - FIRMA - 18 April 2011

  32. Common Payments Messages • MT 103 Scope • This message type is sent by or on behalf of the financial institution of the ordering customer, directly or through (a) correspondent(s), to the financial institution of the beneficiary customer. • It is used to convey a funds transfer instruction in which the ordering customer or the beneficiary customer, or both, are non-financial institutions from the perspective of the sender. • MT 202 Scope • This message is sent by or on behalf of the ordering institution directly, or through correspondent(s), to the financial institution of the beneficiary institution. • It is used to order the movement of funds to the beneficiary institution. Introduction to SWIFT - FIRMA - 18 April 2011

  33. I N I T I A T I O N C L E A R I N G&S E T T L E M E N T A C C O U N T R E P O R T I N G A C CO U N T R E P O R T I N G Payments and cash management processes Customer-to-Bank Interbank Bank-to-Customer Customer Credit TransferInitiation Customer Direct DebitInitiation Payment Status Report B2C Account Report B2C Account Report B2C Account Statement B2C Account Statement B2C DebitCreditNotification B2C DebitCreditNotification Introduction to SWIFT - FIRMA - 18 April 2011

  34. High level message flow (Wire transfers) Settlement path can change based on information exchanged using SWIFT messages Community Bank IBK # 1 IBK # 2 Beneficiary’s Bank Originator Beneficiary Payment Initiation SETTLEMENT Fed SWIFT MESSAGING Introduction to SWIFT - FIRMA - 18 April 2011

  35. Cover payments – Timing aspects Pay $1000 103 103 910 103 Mr. Jones London 103 09:00 ET It’s only 03:00 ET! It’s only 03:00 ET! Pay $1000 Mr. Jones London Bank A London 09:00 CET Bank B New York 09:00 CET 202 Bank A London Bank B New York 09:00 ET 09:00 CET 202 Bank C New York 09:01 ET 09:01 ET Bank C New York It’s 22:01! Here it’s 16:00 Bank D Tokyo Mr. Ueda Tokyo Bank D Tokyo Introduction to SWIFT - FIRMA - 18 April 2011 Mr. Ueda Tokyo

  36. Cover payments – Cost aspect Pay $1000 202 202 103 910 103 Mr. Jones London 103 103 $980 Charges $20 Pay $1000 No customer charges Mr. Jones London $965 Bank A London $1000 $1000 Bank B New York $1000 Bank A London Bank B New York $1000 Charges $15 No customer charges Bank C New York $1000 Charges $10 Charges $10 Bank C New York Bank D Tokyo Mr. Ueda Tokyo Mr. Ueda Mr. Ueda Bank D Tokyo $990 $955 Introduction to SWIFT - FIRMA - 18 April 2011 Mr. Ueda Tokyo

  37. Q&A ? Introduction to SWIFT - FIRMA - 18 April 2011

  38. Thank you Introduction to SWIFT - FIRMA - 18 April 2011

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