Overview of Singapore s Payments and Securities Settlement Landscape

Transcription

1 Overview of Singapore s Payments and Securities Settlement Landscape Table of contents Description Section No. - List of abbreviations 3 - Introduction 4 1. The institutional aspects 4 Page No. 1.1 Role of the Monetary Authority of Singapore in payment and settlement 4 systems Settlement Agent Operator Overseer The general legal and regulatory framework The role of other private and public sector bodies Singapore Clearing House Association (SCHA) Association of Banks in Singapore (ABS) Controller of Certification Authorities (CCA) 7 2. Payment media used by non-banks Cash payments Non-cash payments GIRO Credit transfers Direct debits Cheques Payment cards Electronic money Automated teller machines (ATMs) Debit cards Credit cards Other access channels for banking and payments Telephone banking Mobile banking Internet banking Self-service machines Interbank exchange and settlement systems General overview New MAS Electronic Payment System (MEPS+) Operating rules Participants in the system Types of transactions handled Operation of the transfer system and the transaction processing 13 environment Settlement procedures Credit and liquidity risks and their management Pricing policies Foreign Exchange (FX) Settlement Systems Continuous Linked Settlement (CLS) Clearing and Payment Services Pte Ltd (CAPS) Retail payment systems Singapore Dollar Cheque Clearing System (SGDCCS) US Dollar Cheque Clearing System (USDCCS) Cheque Truncation System Interbank GIRO (IBG) 16 Page 1

2 3.4.5 ATM networks Securities and derivatives settlement systems Singapore government securities Trading Pre-settlement Settlement Corporate and statutory board bonds Trading Pre-settlement Settlement Securities Trading Pre-settlement Settlement Risk management Derivatives Trading Pre-settlement Settlement Risk management Statistical tables 22 Date: 15 March 2010 Page 2

3 ABS BCCS BCS CCA CDP CTS DCSS DVP ECS EFTPOS EPTC FOP IBG IDAS IFT IOB MAS MCB MEPS+ MLA NETS PS(O)A PVP QFB QOB SACH SCHA SGDCCS SGS SGX SVF USDCCS List of abbreviations Association of Banks in Singapore Board of Commissioners of Currency, Singapore Banking Computer Services Pte Ltd Controller of Certification Authorities Central Depository Pte Ltd Cheque Truncation System Debt Securities Clearing and Settlement System Delivery versus Payment Electronic Clearing System Electronic Fund Transfer at the Point of Sales Electronic Payments Technical Committee Free of payment Interbank GIRO Institutional Delivery Affirmation System Interbank Funds Transfer Internet-only bank Monetary Authority of Singapore Minimum Cash Balances New MAS Electronic Payment System Minimum Liquid Assets Network for Electronic Transfers (Singapore) Pte Ltd Payment Systems (Oversight) Act Payment versus Payment Qualifying full bank Qualifying offshore bank Singapore Automated Clearing House Singapore Clearing House Association Singapore Dollar Cheque Clearing System Singapore Government Securities Singapore Exchange Stored Value Facility US Dollar Cheque Clearing System Page 3

4 Introduction Singapore s payment system landscape has evolved over the years, driven by technological progress, changing consumer needs and the development of new financial activities. It has transformed from a paper and cash transaction focused system to one with a diverse range of alternative payment instruments, supported by efficient and reliable clearing and settlement infrastructure. The majority of non-cash retail payments utilise interbank GIRO debit and credit transfers as well as payment cards (stored value, debit and credit cards) and cheques. Banks customers can also use their debit cards to make third-party account funds transfers and to pay bills via the ATMs and self-service kiosks. Other payment channels that have seen recent growth include contactless card payments, mobile and internet banking services. 1. The Institutional Aspects 1.1 Role of the Monetary Authority of Singapore in payment and settlement systems Settlement Agent MAS acts as a settlement agent for the banking institutions in Singapore by allowing funds transfers to take place across their settlement accounts held with MAS. MAS also handles government-related payments and receivables that usually take the form of funds transfers between the government s accounts with MAS and with banks Operator MAS operates the New MAS Electronic Payment System ( MEPS+ ), a real-time gross settlement system which settles large-value interbank funds transfers (see Section 3.2). MEPS+ also handles the settlement of scripless Singapore Government Securities ( SGS ). Payment obligations that arise from trading in SGS and other Singapore dollar-denominated corporate debt between MEPS+ participants (which are typically banks in Singapore) are settled on a delivery versus payment ( DVP ) basis through interfaces to the interbank funds transfer system in MEPS+ (see Section 4.2) Overseer MAS role in the oversight of payment and settlement systems is to promote the safety and efficiency of these infrastructures. In this regard, MAS is empowered under the Payment Systems (Oversight) Act 2006 (Cap. 222A) ( PS(O)A ) to supervise operators, settlement institutions, and participants of designated payment systems. MAS also works with the industry to facilitate the development of Singapore s payments landscape. 1.2 The general legal and regulatory framework MAS has explicit legislative powers to establish and operate RTGS systems, oversee the management of the cheque and Interbank GIRO systems, and regulate the issuance of multipurpose stored value facilities. These powers are spelt out under the various Acts and Regulations as highlighted below. In addition, MAS consults with the industry to ensure its payment systems objectives are achieved. Page 4

5 The following table sets out the relevant legislation and regulations under the purview of MAS that applies to the payment instruments and institutions in Singapore. Payment instrument and/or institution Cheques and GIRO Cheques and GIRO Continuous Linked Settlement (CLS) Currency Payment Systems Legislation, Regulations and Bye-Laws Section 59 of the Banking Act (Chapter 19) Payment Systems (Oversight) (Singapore Dollar Cheque Clearing System And Inter- Bank GIRO System) Regulations 2006 Payment and Settlement Systems (Finality and Netting) Act (Chapter 231) Currency Act (Chapter 69) Payment Systems (Oversight) Act 2006 (Chapter 222A) Description This provision of the Banking Act allows MAS, in conjunction with banks and other financial institutions, to establish a Clearing House to facilitate the clearing of cheques and other credit instruments, and ensure its smooth operation. These Regulations set out the rules, obligations and procedures relating to participation in the Singapore Dollar Cheque Clearing System and the Inter-Bank Giro System. CLS is a designated payment system under the Payment and Settlement Systems (Finality and Netting) Act. The CLS Bank is chartered and supervised by the Federal Reserve System, which includes both the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York. The G- 10 and other central banks of issue of CLS-settled currencies have established a Protocol for the Cooperative Oversight Arrangement of CLS in November 2008 to provide a mechanism for mutual assistance in carrying out their individual responsibilities in pursuit of their shared public policy objectives for the safety and efficiency of payment and settlement systems and their focus on the stability of the financial system. MAS is a participating central bank of this Cooperative Oversight Arrangement. MAS is the sole issuer of currency in Singapore. Under the Currency Act, the currency in circulation must be 100% backed by external assets. This is achieved through the maintenance of a currency fund consisting of gold, silver, and foreign exchange in the form of demand and time deposits, treasury bills, notes, coins as well as other assets. The PS(O)A provides for the oversight of payment systems and SVFs in Singapore. The Act gives MAS powers over payment systems, instruments and participants, covering three main areas: 1) The designation of payment systems as systemically important payment systems (SIPS) or system-wide important payment systems (SWIPS). 2) Information gathering powers over all Page 5

6 Payment instrument and/or institution Real-time gross settlement (RTGS) system Securities clearing and settlement systems Stored-value facilities Legislation, Regulations and Bye-Laws Section 29A of the Monetary Authority of Singapore Act.(Chapter 186) Section 21 of the Payment and Settlement Systems (Finality and Netting) Act (Chapter 231) Securities and Futures Act (SFA) (Chapter 289) Payment Systems (Oversight) Act 2006: Part VII (Chapter 222A) Description payment system participants. 3) Stored value facilities (SVFs). This allows MAS to establish and operate one or more real-time gross settlement ( RTGS ) systems. MAS is responsible for the smooth operation of the RTGS system and ensures that participants comply with the rules and regulations. MEPS+ is designated under the Payment and Settlement Systems (Finality and Netting) Act. All transactions settled by MEPS+ are final and irrevocable. MAS regulates Central Depository (Pte) Ltd (CDP) as a designated clearing house under the Securities and Futures Act (SFA). CDP is a wholly owned subsidiary of the Singapore Exchange (SGX). CDP provides depository, clearing and book-entry settlement services for the Singapore securities market. As a depository, CDP holds the securities on behalf of investors in CDP securities accounts. CDP also clears and settles all transactions in the securities market through its book-entry settlement system. This provides the legal framework for stored-value facilities, with provisions for MAS to gather information from any SVF issuer of stored value facilities. Other legislation that may be relevant to payment and settlement systems in Singapore includes the Bills of Exchange Act (Chapter 23), the Development Loan Act (Chapter 81), the Government Securities Act (Chapter 121A) and the Electronic Transactions Act (Chapter 88) 1.3 The role of other private and public sector bodies Singapore Clearing House Association ( SCHA ) The SCHA was formed in December 1980 to establish, manage and administer clearing services and facilities for the cheque, debit and credit items of its members. Membership is open to interested commercial banks and the MAS. There were 47 ordinary members and 49 associate members as of 31 st Dec The SCHA defines the rules which govern the participating banks and service providers for the various clearing systems. It also oversees the activities of the Singapore Automated Clearing House ( SACH ) which is responsible for the operation of the Singapore Dollar Cheque Clearing System, the US Dollar Cheque Clearing System, and the Interbank GIRO System. In addition, the SCHA arbitrates the settlement of disputes arising in connection with the clearing of cheques and GIRO items of its members. Page 6

7 1.3.2 Association of Banks in Singapore ( ABS ) The ABS is made up of member banks drawn from a wide spectrum of banking entities licensed by MAS. It represents the interests of its members, sets minimum standards of good practice for these members and supports projects that are mutually beneficial. The ABS holds regular discussions with MAS regarding industry issues and the promotion of a sound financial system in Singapore. The ABS also provides input for legislation and guidelines relating to issues that affect the industry, including on payment and settlement systems Controller of Certification Authorities ( CCA ) As specified under the Electronic Transactions Act, the CCA oversees the activities of certification authorities ( CAs ). The licensing scheme for CAs is voluntary. It promotes highintegrity CAs that can be trusted. A licensed CA enjoys the benefits of evidentiary presumption for its digital signatures. A CA wishing to obtain a licence must meet stringent licensing criteria in various aspects, including financial soundness, personnel integrity, strict security controls and procedures. The licensing criteria are stipulated in the Electronic Transactions Act 1998, Electronic Transactions (Certification Authorities) Regulations 1999 and the Security Guidelines for Certification Authorities. The CCA comes under the Infocomm Development Authority of Singapore. 2. Payment media used by non-banks 2.1 Cash payments Currency remains the most widely accepted payment medium for small-value transactions in Singapore. Under the Currency Act, MAS has the sole right to issue currency notes and coins in Singapore. 2.2 Non-cash payments GIRO The Interbank GIRO ( IBG ) system is an offline interbank payment system catering mainly to low-value bulk payments. IBG allows a customer of a participating bank to transfer funds, through direct debits or credits, to and from the accounts of customers of any other participating bank. The number of IBG transactions processed in 2008 was million, with a total value of SGD billion Credit transfers In credit transfers, the payer instructs his bank to debit his account and transfer the funds to the payee. For standing order arrangements made by the originators with their bank, the bank carries out the necessary transfers on a regular specific date, to a specific receiver and for a specific amount. Payroll crediting is the most common direct credit transfer. There is no maximum limit for each single GIRO credit transaction. Some banks offer direct crediting services to their individual customers, mainly through internet banking and ATMs. These individual instructions are processed together with the bulk credit instructions for that day Direct debits In debit transfers, the payee instructs his bank to collect payment (subject to an upper limit of SGD 25 million) from the paying party, often on a recurring basis. Direct debit payments are Page 7

8 pre-approved by the paying customer, who gives permission to his bank to debit his account upon receipt of instructions initiated by the specified originator. Examples of such preauthorised recurring payments include utility bill payments and payments for insurance premiums. To facilitate faster processing of the Direct Debit Authorisation, some banks tie up with their billing organisations to offer online GIRO payment applications to their Internet-banking customers, while other organisations allow for GIRO applications via the NETS Electronic Fund Transfer at the Point-of-Sales ( EFTPOS ) terminals or through the self-service kiosks e.g. AXS stations Cheques Cheques are commonly used in Singapore by consumers for bills and payments for purchases of goods and services, as well as among businesses. In 2008, million cheques for a total value of SGD billion were processed by the SACH. 1 All banks in Singapore that clear SGD and local USD cheques have implemented an online image-based cheque clearing system called the Cheque Truncation System (CTS) from 12 July With CTS, cheques are scanned when deposited and their electronic images, instead of the physical cheques, are transmitted throughout the entire clearing cycle. CTS enhances the operational workflow of banks by eliminating the need to move cheques physically from one bank to another. Cheques, in a standardised size, are used under the new system. CTS will be covered in details in Section Payment cards Electronic money In Singapore, electronic money, also commonly known as stored value facilities ( SVFs ), are classified as either single purpose stored value facilities ( SPSVFs ) or multipurpose stored value facilities ( MPSVFs ). SPSVFs can only be used to pay for goods and services offered by the issuer (e.g. prepaid phone cards) while SVFs that allow customers to pay for goods and services offered by other merchants or organisations are classified as MPSVFs. Under the PS(O)A, any entity can issue SPSVF, as well as MPSVF with total outstanding stored value below a prescribed threshold (currently at SGD 30 million), without requiring MAS approval. This regulatory regime liberalises the SVF market and allows for more flexibility to meet consumer needs and provide consumers with more choices in convenient payment methods. However, approval from MAS, together with the appointment of an approved bank, is required for an entity to issue widely accepted MPSVF. 2 The two widely accepted MPSVF schemes prevalent in Singapore are the Network for Electronic Transfers (Singapore) ( NETS ) CashCard and the EZ-Link card. The NETS CashCard, launched in November 1996, began primarily as a contact-based MPSVF issued by the three local banks. Contactless card interfaces were introduced a decade after launch in July Cashcard offers consumers a cashless payment option at a variety of retail outlets, car parks and vending machines, as well as payment of toll charges at Electronic Road Pricing gantries and the checkpoints between Singapore and Malaysia. In addition, the CashCard can be used for online purchases with the use of a card reader. The CashCard can be reloaded with amounts up to SGD 500 at ATMs, selected EFTPOS terminals and automated kiosks provided by NETS as well as some mobile phones and over the internet. The EZ-Link card, launched in April 2002 is a contactless MPSVF issued by EZ-Link Pte Ltd and is primarily used for transit payments in Singapore. EZ-Link cards may also be used in some schools, at food and beverage outlets as well as some retail outlets. The EZ-link card 1 This includes both SGD and USD cheques. 2 The SVF scheme must have a float of SGD 30 million or more to qualify as a widely accepted SVF. Page 8

9 has a load limit of SGD 100 3, reloadable at ticketing machines or ticket offices at Mass Rapid Transit ( MRT ) stations, bus interchanges and other locations, as well as through mobile phones. 4 Automatic reloading is available either by linking up the EZ-Link card to a bank account or credit card account. The liberalisation of the SVF market has contributed to the emergence of many SPSVFs and limited coverage MPSVFs, bringing about a substantial increase in SVF usage. From 2000 to 2008, the number of electronic money transactions has risen from 0.1 billion to 1.87 billion transactions, while the value of transactions has grown from SGD 0.17 billion to SGD 2.25 billion Automated teller machines ( ATMs ) ATMs are one of the channels that allow banks customers to perform routine banking transactions without having to visit a bank branch. The first ATM in Singapore was installed in 1979 by Chartered Bank. There were about 2,000 ATMs in Singapore as of 2008, representing a penetration rate of about 413 ATMs per million inhabitants. 5 ATMs offer consumers greater ease in making deposits to and withdrawals from their bank accounts. In addition, they provide other services such as share applications, third-party funds transfers, bill payments and the ability to reload MPSVFs. The three major ATM networks in Singapore are the NETS OCBC-UOB network, the DBS-POSB network and the ATM 5 network Debit cards Debit cards allow for the payment of goods and services or cash withdrawal. These transactions are effected through an online transfer of funds from the cardholder s account. Debit cards can be broadly categorised into two groups: PIN-based debit cards and signaturebased debit cards. PIN-based debit cards are based on a single message authentication system while signature-based debit cards are based on a dual message authentication. The majority of PIN-based debit cards in Singapore are NETS EFTPOS debit cards. These cards allow cardholders to make payments or withdraw cash from their deposit accounts at ATMs and EFTPOS terminals. Visa Debit and the Debit MasterCard are examples of signature-based debit cards in Singapore. As at end 2008, there were a total of million debit/atm card transactions worth SGD billion transacted at 71,272 debit card terminals. NETS introduced the EFTPOS service in The system allows holders of ATM cards issued by the local banks to pay merchants for the purchase of goods and services through an online transfer of funds from their accounts. EFTPOS terminals are available at a variety of retail outlets such as major supermarkets, department stores, petrol stations, government departments and a large number of smaller merchants. The EFTPOS service was enhanced by the addition of the CashBack feature in 2001 that allows consumers to withdraw cash at the point of sale. Since 2005, China Unionpay ( CUP ) debit cards can be used directly at NETS EFTPOS terminals in Singapore. CUP card holders are also able to withdraw cash from a network of more than 1,500 ATMs operated by the local banks in Singapore. 3 SGD 500 for new CEPAS-compliant cards 4 As at November Population as at end 2008 from Department of Statistics Singapore. 6 The ATM 5 network is run by MasterCard for 5 Qualifying Full Banks: Citibank, Maybank, HSBC, ABN AMRO and Standard Chartered Bank. Page 9

10 Credit cards All major credit card brands are issued and accepted in Singapore. The issuance of credit cards is subject to MAS guidelines and regulations such as income eligibility criteria for card applicants and restrictions on the marketing of credit cards. With effect from 1 st March 2009, MAS lowered the minimum income threshold for unsecured credit facilities from S$30,000 to S$20,000. However, this lower limit does not apply to credit cards and remains unchanged at S$30,000 for individuals at or below 55 years of age and S$15,000 for individuals above 55 years of age. The maximum aggregate credit limit of all unsecured personal credit facilities and credit or charge cards granted by a financial institution has also been revised and set at four times of monthly income for individuals with at least S$30,000 in annual income. For individuals with annual income between S$20,000 and S$30,000, the maximum aggregate credit limit will be twice their monthly income. The unsecured lending provisions will not apply to high net worth Singaporean or Permanent Residents earning at least S$120,000 per annum, and non-singaporeans/permanent Residents. Total credit card transactions of Singapore residents amounted to SGD billion in This consisted of transactions by Singaporeans and PRs in Singapore and overseas Other access channels for banking and payments Telephone banking Since the introduction of phone banking in 1982, the range of phone banking services offered has increased. Besides being able to transfer funds and conduct account balance enquiries over the telephone, bank customers can also make bill payments, trade in stocks and bid for Certificates of Entitlement ( COEs ) Mobile banking Bank customers have been able to conduct banking transactions through their mobile phones. They can also pay for some online purchases using their mobile phone instead of credit card. One payment method involves payers registering their credit card account details with their mobile payment service provider. Payers can then make payment using an ID and PIN as authentication and the payment processed as a credit card transaction. Another method allows the mobile payment to be reflected in the payer s phone bill Internet banking Internet banking allows consumers to conduct account balance enquiries, fixed deposit placements, demand draft applications and loan applications. In addition, payment services such as funds transfers (including transfers to third parties accounts with other banks) and bill payments are available. A number of banks have also launched internet payment services that enable consumers to pay for their internet purchases by directly debiting their bank accounts. In addition, there are several online payment portals operating in Singapore. An example is PayPal, which allows buyers and sellers to make and receive payments online without sharing financial information. The MAS issues guidelines to assist banks in establishing a sound and robust technology risk management framework for the purpose of strengthening system security, reliability, availability and recoverability as well as deploying strong cryptography and authentication mechanisms to protect customer data and transactions. Since 2003 MAS has been encouraging banks to adopt two-factor authentication ( 2FA ) for enhancing the level of internet banking security and raising customer confidence. A common implementation of the second factor authentication is the use of one-time passwords ( OTPs ) that are generated by a hardware tokens or sent to the customer s designated mobile phone number via text messaging ( SMS ). Page 10

11 Self-service machines Just as ATMs empowered the banking public to do their own banking in the 1980s, general self-service machines offering a rich array of tasks ranging from bill payments, movie ticketing, resort room bookings, magazine subscriptions, e-money reloads to charity donations have become popular payment channels since they were first launched in Though slow to take off initially, incremental changes to streamline the users experience and the greater reliability of the present generation of machines have resulted in healthy growth. The two main self-service networks, AXS and S.A.M. now have more than 750 installations across the nation, capturing up to 20% of recurrent bill payment volume. 3. Interbank exchange and settlement systems 3.1 General overview The key payment and clearing functions in Singapore are provided by a few major organisations. 1. MAS operates the settlement system for large-value interbank fund transfers, i.e. the New MAS Electronic Payment System ( MEPS+ ). 2. The Continuous Linked Settlement System ( CLS ) settles FX transactions in seventeen major currencies on a payment versus payment ( PVP ) basis, thereby eliminating FX settlement risk. The three local banks in Singapore are interfaced to CLS via a shared utility operated by the Clearing & Payment Services Pte Ltd ( CAPS ). 3. The Singapore Clearing House Association ( SCHA ) provides three payment clearing and settlement systems for its member banks: a. Singapore Dollar Cheque Clearing System ( SGDCCS ); b. US Dollar Cheque Clearing System ( USDCCS ); and c. Interbank GIRO System ( IBG ). 4. Major ATM networks in Singapore: a. The DBS-POSB ATM network, b. The NETS OCBC-UOB network, and c. The MasterCard ATM 5 network. Large-value electronic payments are settled in MEPS+. Payment obligations that arise from trading in SGS and in other SGD-denominated corporate debt are settled on a Delivery versus Payment ( DVP ) basis via interfaces to the interbank funds transfer system in MEPS+ (see Section 4.2). Foreign exchange ( FX ) settlement of seventeen major currencies occurs via the CLS system on a Payment versus Payment ( PVP ) basis. This system provides for greater efficiency in FX settlement with netting efficiencies of up to 90%. Singapore s three local banks connect to CLS Bank via the single connection of CAPS, rather than the usual direct connection of individual bank to CLS that other countries have adopted. The SCHA provides SGD and USD cheque, and interbank GIRO clearing services for its members through the Automated Clearing House ( ACH ), which is operated by Banking Computer Services Pte Ltd ( BCS ). Banks' net obligations arising from the SGD Cheque Clearing System and the Interbank GIRO System are settled through MEPS+, on a deferred same-day basis. The settlement files are prepared by the ACH and sent to MEPS+ electronically at stipulated times. Obligations arising out of the USD Cheque Clearing System are settled across participants accounts held with Citibank NA, the settlement bank for USDCCS. Similarly the ACH will prepare and send the settlement files, which contain obligations for each participant to Citibank NA at a stipulated time each working day, Page 11

12 The following is a summary of the transaction volume and value for the major payment and clearing functions for Transactions (2008) Number (millions) Value (SGD billions) Average value per transactions (SGD) MEPS+ (IFT and SGS) ,233 4,352,010 CLS (SGD) ,570 24,202,658 CAPS ,573 32,459,370 SGDCCS ,019 USDCCS ,406 IBG , New MAS Electronic Payment System (MEPS+) MEPS+ is an RTGS system developed for large-value SGD interbank funds transfers and the settlement of scripless SGS transactions. An important feature of MEPS+ is the real-time and irrevocable transfer of funds and SGS. The settlement of the cash leg of SGD-denominated corporate and other government debt instruments can also be made through MEPS+ on a DVP basis. Banks current accounts held with MAS are structured to facilitate RTGS payments. At the start of the day, funds maintained with MAS, in the current account, are transferred to the RTGS account, where they may be used for the settlement of MEPS+ payments. Where an intraday Minimum Cash Balances ( MCB ) 7 requirement applies to a bank, only funds in excess of its intraday MCB requirement are transferred to the RTGS account Operating rules MEPS+ is owned and operated by MAS. All participating banks are contractually bound to operate in compliance with the MEPS+ operating rules and regulations as stipulated by MAS Participants in the system All banks in Singapore licensed under the Banking Act are eligible to participate directly in MEPS+. Some banks with a small volume of SGD payments may choose not to participate in the system. Instead, such non-participating banks may appoint through private agency agreements, participating banks as their agents to make SGD interbank payments on their behalf. While the terms of such agreements are negotiated bilaterally between the banks, and are outside the ambit of MEPS+, MAS provides some services for these non-participating banks to transfer funds and SGS out from their MAS current accounts and SGS-Minimum Liquid Assets 8 (MLA) accounts respectively. There were 60 participating banks in MEPS+ as at April For 2008, the daily turnover value for MEPS+ averages around SGD 64 billion and the average daily volume of transactions is around 14, Types of transactions handled MEPS+ is designed to facilitate large-value SGD interbank funds transfers and to settle scripless SGS transactions on a DVP basis. In addition, it also maintains a real-time system 7 Under Section 39 of the Banking Act, all banks in Singapore are required to maintain MCB with MAS calculated as an average fortnightly amount. On a day-to-day basis, a bank's closing MCB is allowed to vary within a band of 1% above or below the required 3% MCB, i.e. the closing MCB balance on any day should not drop below 2% of the liabilities base and any balance in excess of 4% will not be counted towards the fortnightly average. The average closing MCB balance held over the fortnightly maintenance period must be at least 3% of the liabilities base. 8 Under Section 38 of the Banking Act, as part of the MLA requirements, all banks in Singapore must hold Singapore Government Securities equal to at least 10% of total liabilities, of which 5% must be outright holdings of SGS. The remaining SGS may be held under reverse repo transactions. Page 12

13 link to the Singapore Exchange ( SGX ) Debt Securities Clearing and Settlement System ( DCSS ) for the settlement of listed SGD corporate debt securities on a DVP basis Operation of the transfer system and the transaction processing environment As MEPS+ leverages on SWIFT infrastructure, participants are able to make use of their existing SWIFT terminals and interfaces to submit payment instructions, manage queued transactions and perform online inquiries. Submitted payment instructions that are not able to settle due to insufficient funds in a participant s account are queued with priority assigned by the participating bank. All queued instructions are settled according to their assigned priority levels on a first-in-first-out basis. Some features of MEPS+ include: The use of SWIFT message formats and the SWIFT network, to enable industry to streamline their back office and cash management operations, increase straight through processing and reduce costs in training, message translation and repair, and to leverage banks existing SWIFT infrastructure for lower network costs; Parameterised queue management, to provide participants with advanced queue management capabilities for better risk management and increased efficiency; Automated collateralised intraday liquidity facilities, to enable participants, particularly banks with low liquidity, to settle their payments more efficiently and, to increase system payments flow; and Automated gridlock resolution, which detects and resolves gridlocks to prevent or reduce payment queues and to increase overall payments flow efficiency. To mitigate operational risks, business continuity and disaster recovery plans are established and regularly tested by both MAS and participants. In addition, MEPS+ and participants SWIFT systems are subject to periodic operational and technical audits by MAS Internal Audit Department (IAD) and MAS bank examiners respectively Settlement procedures MEPS+ consists of two subsystems, namely MEPS+ Interbank Funds Transfer ( MEPS+-IFT ) and MEPS+ Singapore Government Securities ( MEPS+-SGS ). MEPS+-SGS is described in more detail in Section Under the MEPS+-IFT subsystem, interbank funds transfers are made using SWIFT messages. Provided the paying bank has sufficient funds in its RTGS account, its same day payment instructions will be settled instantaneously and irrevocably. MEPS+-IFT processes only same day value transactions. However, the system also accepts forward-dated transactions up to fourteen working days ahead. Such forward-dated transactions are stored in the system and processed on the actual value date Credit and liquidity risks and their management To minimise settlement risk, MAS allows banks to use the full amount of their reserves on an intraday basis. Participants may also request for additional liquidity on an intraday basis through the use of automated collateralised intraday liquidity facilities. With effect from 24 July 2008, a MEPS+ participant may borrow SGD funds from MAS by entering into a repurchase transaction of SGS, if they have entered into the PSA/ISMA Global Master Repurchase Agreement ( GMRA ) with MAS, and deposit SGD funds clean with MAS, on an overnight basis ( Facility ). The reference rate of the Facility is the weighted average of successful bids for the SGD 500 million overnight clean borrowing during morning money market operations. The interest rate at which a MEPS+ participant may borrow from the Facility will be the reference rate rounded to 2 decimal places plus 50 basis points, and the rate at which a MEPS+ participant may deposit with the Facility will be the reference rate rounded to 2 decimal places minus 50 basis points. Page 13

14 3.2.7 Pricing policies MEPS+ participating banks are charged on a cost recovery basis, composed of the following components: i. Time-based transaction charges New MEPS+ Pricing Framework This pricing structure aims to improve payment safety and efficiency by encouraging banks to pay early in the day. Settlement Time Band Per Transaction Charge 09:00-14:30 $ :31-16:00 $ :01-17:30 $ :31-18:30 $5.00 ii. End-of-day statement messages The end-of-day statements contain all the transactions and daily closing positions of participants. The participants will be charged $0.20 per SWIFT statement message. This recovers costs charged to MAS by SWIFT for each statement message sent by the system. iii. Annual subscription fee The fee tiering is based on the assumption that banks with licenses that allow for a wider range of banking activities would derive more benefits from participating in MEPS+. Bank Category Annual Subscription Fee DBS, UOB, OCBC $16,000 Qualifying Full Banks $13,000 Full Banks $7,500 Wholesale Banks $2,000 Offshore Banks $750 iv. Manual contingency charges Manual contingency is a service provided by MAS for participants that are unable to effect payments or SGS transactions due to system failures. There are two manual contingency modes in MEPS+. One mode relies on participant's instructions sent in a CD-ROM. The other is the manual input mode. Both modes will be subject to a $100 activation fee to ensure that banks do not activate contingency frivolously. Each transaction submitted using CD-ROM will be charged a lower $5/transaction to reflect the greater efficiency over manual key-in. CD-ROM Backup Manual Key-in Backup $100 activation fee $100 activation fee $5/transaction $10/transaction Page 14

15 3.3 Foreign Exchange ( FX ) Settlement Systems Continuous Linked Settlement ( CLS ) CLS is a payments process that enables cross border currency transactions to be settled on a Payment versus Payment ( PvP ) basis. It is a real time, global settlement system that eliminates the settlement risk caused by delays arising from settlement across time zones. The CLS service is offered by CLS Bank International 9 ( CLS Bank ), and is supported by over 65 of the world s largest global financial institutions. CLS Bank links to the RTGS systems operated by Central Banks in seventeen currencies. 10 In addition, there is greater liquidity efficiency in the CLS system, as it requires funding only of the netted values of the FX trades. As opposed to the correspondent banking model where full funding of the gross FX trade values is required, netting in CLS allows banks to manage their liquidity more efficiently, leading to cost reductions for funding requirements Clearing and Payment Services Pte Ltd ( CAPS ) Incorporated in 2001, CAPS is a shared utility service owned and used by DBS, UOB and OCBC to connect to CLS. It is the world s first collaborative payment utility, which was established by the three banks to reduce CLS integration and ongoing operating cost. This initiative differs from the majority of the CLS settlement member banks that have traditionally built direct connections to the CLS Bank. By aggregating CLS transactions and providing value-added services for its bank customers, CAPS enables the three banks to achieve economies of scale and efficiency. 3.4 Retail payment systems Singapore Dollar Cheque Clearing System ( SGDCCS ) The operator of the SGDCCS is BCS. Direct participation in the SGDCCS is available only to ordinary SCHA members. Associate members can participate indirectly in the SGDCCS using another direct participating bank as its clearing agent. As at December 2008, there are 34 direct participants and 27 indirect participants in the SGDCCS US Dollar Cheque Clearing System (USDCCS ) The USDCCS was launched in 1996 to clear and settle US dollar-denominated cheques drawn on banks in Singapore. BCS and Citibank NA are the appointed clearing operator and settlement bank, respectively, for the USDCCS. For the settlement of USD cheques, participating banks must maintain USD accounts with Citibank NA. As at December 2008, there are 32 direct participants and 13 indirect participants in the USDCCS Cheque Truncation System In July 2003, banks in Singapore migrated to a new cheque clearing system, known as the Cheque Truncation System ( CTS ). Both SGD and USD denominated cheques presented to, and drawn on banks in Singapore, are cleared through CTS. CTS originated as an initiative from the SCHA and the ABS to enhance the operational efficiencies of the banking industry. CTS is the world's first nation-wide end-to-end cheque truncation system, leveraging on advanced imaging and internet technologies to capture cheque images at the point of deposit and transmitting the images over a secured communication network. Physical movement of paper cheques has been replaced with electronic information (MICR and images), resulting in a more efficient cheque clearing cycle of one working day. 9 CLS Bank is based in New York and is an Edge Corporation bank supervised by the Federal Reserve. CLS Services Pte Ltd is the operations arm of the CLS group and is located in London. 10 US Dollar, euro, UK Pound, Japanese Yen, Swiss Franc, Canadian Dollar, Australian Dollar, Swedish Krona, Danish Krone, Norwegian Krone, Singapore Dollar, Hong Kong Dollar, New Zealand Dollar, Korean Won, South African Rand, Israeli Shekel and Mexican Peso. Page 15

16 The clearing and settlement process of a SGD cheque is as follows: 1. The payer sends a cheque to the payee. 2. The payee deposits the cheque at the presenting bank, which credits the payee s account provisionally ( on hold cheques). 3. The presenting bank captures the cheque images and MICR before transmitting electronically to ACH via a secured private network. 4. After clearing the cheques and determining the net settlement amount for each participating bank, the ACH sends the net clearing figures to MEPS+ for broadcast and settlement. 5. The ACH processes and sorts the data, and makes them available electronically for downloading and processing by the paying banks. 6. If the paying bank rejects a cheque, it will return the unpaid cheques images and MICR to the presenting bank through the ACH on the next business day. 7. The settlement amount for both paying and presenting banks will be adjusted accordingly by the ACH in the figure sent to MEPS+ that day. 8. If the cheque is cleared successfully, the payee can withdraw the on hold funds after 14:00 on the second business day. The ACH will transmit the multilateral net positions of all direct and indirect participants to MEPS+ twice a day. Midday multilateral net settlement positions are broadcast across MEPS+ at 15:05 and net debit banks have until 15:45 to fund their MEPS+ accounts. End-ofday multilateral net settlement positions are broadcast across MEPS+ at 18:15 and banks have until 18:45 to fund any net debit positions. The clearing process for USD cheques is similar to that of the SGD cheques. However, there is only one settlement per day across participating banks accounts with the settlement bank, Citibank N.A Interbank GIRO ( IBG ) IBG is a paperless system that allows a customer of a participating bank to transfer funds, through direct debits and credits, to the accounts of customers of any participating bank. In July 2001, the SACH enhanced the IBG system to a browser-based egiro system, thus eliminating the manual delivery of magnetic tapes between participating banks and the ACH. Participating banks can now send and receive GIRO items, including returned and rejected items, electronically via a secured communication network. With egiro, clearing cycles for the direct credit and debit transactions are shortened significantly. In Dec 2008, an enhanced egiro system, known as egiro+, which leverages on the existing egiro network infrastructure was piloted by a few major participating banks. Some of the main features include an extended clearing window for submission of files to ACH as well as the capability for inward files from ACH to be generated on-the-fly. There is only one settlement session for IBG payment instructions including egiro+ transactions. The ACH will send multilateral net settlement positions to MEPS+ for broadcast to all banks by 15:30, but broadcast at this time is for information only. Banks fund their net debit positions from 18:15 to 18: ATM networks Most banks in Singapore have proprietary ATM networks, but there are linkages between these networks providing consumers with wider access. There are currently three major ATM networks in Singapore: The POSB-DBS ATM network, which was established following the merger of POSB and DBS in This network is a proprietary-based network run by DBS; The NETS OCBC-UOB network, a shared ATM service of the other two local banks (United Overseas Bank and Oversea-Chinese Banking Corporation), and Page 16

17 The MasterCard ATM 5 network. This is a shared network of five Qualifying Full Banks with the switching done by MasterCard. 11 For transactions using the NETS ATM network, the switching is done by NETS. When a cardholder performs a transaction at an ATM of another bank, NETS switches the transaction to the issuing bank for authorisation, which involves verification of the PIN, checking that sufficient funds are available and authentication of the transaction. The issuing bank then sends its response back via NETS, which switches it to the ATM being used, and the transaction is completed. If cardholders perform transactions at their own bank s ATMs, these do not require any switching, as the issuing bank is able to approve them directly. During clearing, NETS calculates the multilateral net settlement positions for each member bank. The net amount is then provided to DBS for direct debiting/crediting of the member banks accounts with DBS. Member banks then manage their nostro accounts at DBS through MEPS+. Cirrus and Plus transactions are cleared by MasterCard and Visa respectively on a similar principle to NETS. When currency conversion is performed, the exchange rates will be determined by MasterCard and Visa on a daily basis. Settlement for these transactions is conducted through the respective card schemes settlement banks. 4. Securities and derivatives settlement systems The securities market of Singapore comprises SGS, corporate debt securities, equities and securities products. The derivatives market trades financial instruments such as interest rate contracts and equity index contracts. The two main providers of securities settlement systems in Singapore are MAS and the Central Depository (Pte) Ltd ( CDP ), the securities clearing house, which is a wholly owned subsidiary of the Singapore Exchange ( SGX ). The derivatives settlement system is operated by the Singapore Exchange Derivatives Clearing Ltd ( SGX-DC ). 1. The MEPS+-SGS subsystem at MAS clears and settles SGS trades on a DVP basis. 2. The CDP is the designated clearing house for Singapore equities corporate debt securities and other securities. CDP operates the following clearing and settlement systems: a. CDP Clearing & Settlement System ( C&S ), which is used to clear and settle securities trades done on the trading platform of Singapore Exchange Securities Trading ( SGX-ST ); and b. Debt Securities Clearing and Settlement System ( DCSS ), a gross DVP settlement system used for the settlement of transactions in the OTC market for private bonds. 3. SGX-DC is the designated clearing house for transactions done on the Singapore Exchange Derivatives Trading ( SGX-DT ), and operates the Clearing Operations and Risk Evaluation system ( CORE ), the clearing system for all derivatives contracts. 4.1 Singapore government securities MAS acts as the agent for the Government of Singapore in issuing SGS, comprising treasury bills ( T-bills ) and government bonds. Maturities range from three months to 20 years with three-month and one-year benchmarks for T-bills and two-, five-, seven-, 10-, 15- and 20-year benchmarks for bonds. Since May 2000, MAS issuance programme has aimed to build large and liquid benchmark bonds. This has been achieved through larger issuance of new SGS 11 The ATM 5 network consists of Citibank, HSBC, Standard Chartered, Maybank and ABN AMRO. Page 17

18 bonds and reopening of existing issues, thereby enlarging the free float of SGS available for trading Trading MAS issues T-bills and bonds on a regular basis. Three-month T-bills are issued weekly, whilst one-year T-bills and two-, five-, seven-, 10-, 15- and 20-year bonds are issued according to an annual issuance calendar, which is usually announced in October for the following year. The exact size of each T-bill and bond auction is typically announced a week ahead of the scheduled auction date. Auction announcements are made via MAS website and for bonds in major local newspapers too. SGS are not listed on the SGX and trading of SGS is done on an OTC basis. SGS primary dealers play a critical role in the growth and development of the bond market by carrying out the following functions: 1. Providing liquidity to the SGS market by quoting two-way prices under all market conditions; 2. Underwriting issuance at SGS auctions; 3. Providing market feedback to MAS; and 4. Assisting in the development of the SGS market. As of September 2008, there are 11 Primary dealers, all of which are banks. Banks, merchant banks and stockbroking firms are among the approved secondary dealers of the SGS market. Other market participants include finance companies, insurance companies, fund managers, corporations and individuals Pre-settlement Trade confirmation is performed outside of the MEPS+-SGS system Settlement The MEPS+-SGS facilitates the settlement of SGS transactions and is linked to the MEPS+- IFT system to provide DVP for SGS transactions. Settlement of SGS transactions occurs over MEPS+ and MAS+-SGS book-entry clearing system. The MEPS+-SGS subsystem opens at 09:00-19:00 daily to process SGS transactions with payments. Participants of the MEPS+-SGS subsystem may hold following accounts, depending on the types of financial institutions: Trade account SGS holdings in excess of the minimum MLA requirements are maintained in this account. SGS holdings in this account can be used for settlement. Reserve account To maintain SGS for compliance with the MLA requirements. 12 Customer account To maintain SGS that belong to Participants' customers. Non-Resident accounts To maintain SGS that belongs to Participants' non-resident customers. Different accounts may be created for these non-resident customers who are subject to various levels of withholding taxes. 12 Please refer to footnote 8. Page 18