Settlement process notes
Settlement process notes
Contents
Settlement process.......................................................................................... 1
Nostro account :..................................................................................... 1
Vostro Account :..................................................................................... 1
Nostro vs Vostro:.................................................................................... 1
Trade Capture:........................................................................................ 2
Confirmation:.......................................................................................... 2
Fixing Date:............................................................................................. 2
Settlement:............................................................................................. 2
Netting:................................................................................................ 3
Nostro Settlement:..............................................................................3
Settlement Risk:................................................................................... 3
Operational Process :........................................................................... 4
Netting Accuracy:................................................................................. 4
Settlement Instruction:........................................................................5
Third party Payments:.......................................................................... 5
Account reconciliation:........................................................................6
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settlement date, counterparty, financial instrument traded, amount
transacted, price or rate, and may also include settlement instructions.
Confirmation: Data included in the confirmation should contain the
following: the counterparty to the FX transaction, the office through
which it is acting, the transaction date (or trade date), the value date (or
settlement date), the amounts of the currencies being bought and sold,
the buying and selling parties, and settlement instructions. Amended
confirmations should be sent promptly when necessary. Settlement
instructions for forward transactions should be reconfirmed two days
before the settlement date. Confirmations should be reviewed on the
trade date to determine the fixing source, and transactions should be
reviewed daily thereafter to ensure that fixings are obtained as required
in the confirmation language.
Fixing Date: In finance and banking, a fixing date is the date that a rate is
determined. It is calculated backwards from the value date (settlement
date) using the same rules as for calculating the spot date. For example,
if the value date is a Thursday and the currency pair has a T+1 spot date,
then the fixing date will be the Wednesday1.
Settlement: Settlement is the exchange of payments between
counterparties on the value date of the transaction. Bilateral settlement
netting is the practice of combining all trades between two
counterparties due on a particular settlement date and calculating a
single net payment in each currency. For example, if an institution
executes twenty-five dollar-yen trades with the same counterparty, all of
which settle on the same day, bilateral settlement netting will enable the
institution to make only one or two netted payments.7 These netted
payments will generally be much smaller than the gross settlement
amount due. The establishment of settlement netting agreements
between counterparties can thus reduce settlement risk, operational risk,
and clearing costs.
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counterparties and calculating a single net payment in each
currency. Settlement on a gross basis not only increases the actual
number of settlements that are necessary but also increases the
probability of settlement errors. An enforceable settlement netting
agreement has the benefit of entitling parties to reduce the
number and size of payments between themselves.
1. Currency should be same
2. Counterparty should be same
3. Settlement Date should be same
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2. CLS has an account with the regulators of each of the 18
currencies which include AUS, JPY, Yen, etc.
3. It settles more than half of FX transactions worldwide
4. It needs to maintain net position per currency per counterparty
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International Foreign Exchange Master Agreement (IFEMA)
covering spot and forward currency transactions,
International Currency Options Market Master Agreement
(ICOM) covering currency options, and
International Foreign Exchange and Options Master
Agreement (FEOMA) covering spot and forward currency
transactions and currency options.
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also disrupt completion of an underlying
transaction.
Standard settlement means SSIs are pre populated and
validated pre or post trade. This flag should be part of Trade
execution as Y or N.
Non Standard settlement Although SSIs are preferred,
they are not always available and may not be
appropriate for all trades. When SSIs are not
used, the settlement instructions may be
recorded at the time of trade execution. These
exception settlement instructions should be
delivered by the close of business on the trade
date (if spot) or at least one day before
settlement (if forward).
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In addition, nondealer participants should provide dealers
with any written information required to screen, internally
review and approve, and accurately make the third-party
payment. For example, written information may include the
third party’s receiving bank name and address; the third
party’s account name, address, and number; and the nature
of the third party’s affiliation with the nondealer participant.
Also, third-party payment instructions should be provided via
authenticated means. Instructions otherwise provided—for
example, by phone or fax—should be reconfirmed by staff
independent of those providing such instructions.
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