SWIFT FOR TRADE

September 2007, Bangladesh.

Contents

What is Swift What is BKE Swift Message / Categories of messages Structured and Free format messages Payment message in Details STP / Non STP payments LC / BG related Messages

SWIFT stand for

S W I F
Society for Worldwide Inter Bank Financial

Telecommunication

Swift History

Increase in International trade and commerce after World War-II Efficient Banking System for payment mechanism with Security, Reliability and Confidentiality was needed. Computer and Telecommunication technology came to rescue. Co-operative organization SWIFT was born

Swift History

SWIFT is the industry-owned co-operative Established in 1973 Head quarters at Brussels Belgium Common language for international financial transactions Secure, Standardised messaging services Provides interface software

Swift Usages

Payments Securities Treasury Trade

SWIFT in figures

208+
Countries Connected

12,946,626 Avg Daily Messages 8147+ Live Users

WHY SWIFT

Advantages of SWIFT

It is Highly Secured It is Highly Reliable It is very cost effective It is Standardized - accepted globally
It

is a STANDARD SETTER Offer standardized web based trust service and e-payments to corporate customers active in B2B E-commerce

WHY SWIFT

Disadvantages of TELEX Insecure Transaction Slower transmission Susceptible to transmission errors Expensive Most transacting Bank is a SWIFT user and not having test key arrangement for TELEX

10

SWIFT NET Architecture

11

SCP
SWIFT TRANSPORT NETWORK
SLICE PROCESSOR

SP

SP

SP

SWIFT TRANSPORT NETWORK

REGIONAL PROCESSOR
RP1 RP2 RP3 RP4

SWIFT TRANSPORT NETWORK

SWIFT ACCESS POINT

SAP

SAP
LTs USERS

12

SAP

It is a Gateway called Swift Access Point. Individual Users or Local Terminal connect to SWIFT ACCESS POINTS (SAP) SAP Forwards Messages to RP using Swift Transport Network

13

IRP / ORP

Input Regional Processor (IRP)

Control and Validation of all input message Input Session Number (ISN)

Generation of ACKS & NAKS to the users

Output Regional Processor (ORP)

Temporarily store output messages Controls message queuing and delivery Output Session Number (OSN) Delivery Monitoring

14

SLICE PROCESSOR (SP)

Message Switching
Long term storage Generation of System Message

15

System Control Processor

Controls the entire Network Organizing Recovery of the Network Responsible for introduction of New Software online Two SCP center on SWIFT Network 1. U.S.A 2. Netherlands

16

PC CONFIGURATION STANDALONE
SWIFT
COMMUNICATION LINK

PC PC CONNECT
17

SWIFT INTERFACE

CONFIGURATION LAN
COMMUNICATION LINK

SWIFT
PC STAND. STN.

COMMUNICATION STATION / Server

PC STAND. STN.
SWIFT INTERFACE

PC
18

PC

SECURITY

SWIFT Security objectives

1.

CONFIDENTIALITY

Information is disclosed to authorized persons at authorized location only Information can be RELIED upon ABSOLUTE, ACCURATE and VALID.

2.

INTEGRITY

3.

AVAILABILITY

Information and the associated services is accessible and usable when needed
Every individual authorized to use the system is accountable

4.

ACCOUNTABILITY

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SWIFT SECURITY

Key Authentication Mechanism Encryption Checksum

20

Swift BIC

BIC stands for Bank Identifier Codes It is the unique identification code of a particular Bank / Branch SWIFT handles the registration of these codes The code is 8 or 11 characters 4 characters - bank code

2 characters - country code

2 characters - location code 3 characters - branch code, optional ( 'XXX' for primary office)

Where an 8-digit code is given, you may assume that it refers to the primary office.
BIC is often called SWIFT addresses or codes

21

Examples of BIC

BIC ICICINBB is for ICICI Bank, Mumbai

ICIC identifies ICICI Bank IN identifies country code for India BB identifies Code for Mumbai

BIC ICICINBB011 is for ICICI Bank, Andheri

011 identifies Code for Andheri Branch

22

BKE / Authenticity of Message

BKE stand for Bilateral Key Exchange

BKE is an essential part of the security of the S.W.I.F.T. network. Exchanges secret bilateral authentication keys Automatically generates code while sending It also decodes and confirm while receiving Once BKE relation established within 2 banks they can send and receive authenticated messages between them. If No BKE present then only MT 999 can be exchanged (MT 999 Free format Unauthenticated Message)

23

Benefits of BKE

Automatically verifies the authenticity of message Smooth process without human intervention Cost saved for processing Processing time reduced

24

Swift Messages

It is a written communication in a structured format

It is not a file No Attachments can be sent Message types (MT)

SWIFT message as identified by 3 digit number

Each MT have diff Structure / Use

Message categories series of MTs relating to a particular class of transaction, as indicated by the first digit of the MT number.

Message Blocks Header, Text , Trailer

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Message Blocks

Header:
Contains control information Addressee, processing, priority and security.

Text
Contains the substance of the message.
format and structure varies according to the MT

Trailer
For control purposes, CHK Trailer, PDE Trailer

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Categories of Messages
Category 1 2 3 4 5 6 7 8 9 Details Customer Payments and Cheques Financial Institution Transfers Treasury Markets Fx, Money Market and Derivatives Collection & Cash Letters Securities Markets Treasury Markets - Precious Metals / Syndications Documentary Credits & Guarantees Travelers Cheques Cash Management & Customer Status

27

Structured / Free Format Message

X99 in each category are free format message (799 is Free format message for LC/BG)

All other are structured MTs

Structured as per Type and use of Message

Except 999 all other free format MTs are authenticated

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MT 110 Scope

Advise of Cheque(s)
Sent by a drawer bank, or a bank acting on behalf of the drawer bank to the drawee bank

It is used to advise the drawee bank, or confirm to an enquiring bank, the details concerning the cheque(s) referred to in the message

29

MT 110 Format
Field No. 20: 53A: 54A: 72: Field Name Senders ref No. Senders Correspondent Receivers Correspondent Sender to receiver information Status M O O O Content / options 16x A, B or D A, B or D 6*35x

21:
30: 32A: 52A: 59:

Cheque Number
Date of issue Cur code/Amount Drawee Bank Payee / Beneficiary

M
M M O M

16x
6n 3a,15d A, B or D [/34x] 4*35x

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MT 111 Scope

Request for Stop Payment of a Cheque This single message type is sent by a drawer bank, or a bank acting on behalf of the drawer bank, to the drawee bank

31

MT 111 Format
Field No. 20: 21: 30: 32A: 52A: 59: 75: Field Name Senders ref No. Cheque Number Date of issue Cur code/Amount Drawee Bank Payee / Beneficiary Status M M M M O O O Content / options 16x 16x 6n 3a,15d A, B or D [/34x] 4*35x

Queries

6*35x

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Flow of payment
Ordering Customer(50K)
Sender (Header)

Receiver (Nostro Account)

Ben. Bank Nostro (56A:) Ben Bank (57a:) Beneficiary (59)

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What is Nostro / Vostro

Nostro

An account that a Bank holds with a foreign Bank

Vostro

An account of foreign Bank held with us

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STP Payment

Currency Clearing House Process

Funds transferred without any repair No human intervention Low cost Real time payments

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Road to STP

Nostro and Currency must match

Ben bank correspondent SWIFT BIC

Ben bank SWIFT BIC or A/c No. with Corresp

Beneficiary Full A/c No. given

Beneficiary Correct Name Given

Swift structure is strictly followed

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Collection MT4xx messages

MT400 : Advice of Payment

MT410 : Acknowledgement
MT412 : Advice of Acceptance MT 499 : Authenticated free format message for documents sent under collection basis.

Stages in LC Backed Trade

Issue of DC and Amendment
Shipment of Goods/ Presentation of documents Discrepancy / Acceptance of Documents

Payment of Documents

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Swift for Documentary Credit

Below MTs are used for DC
MT 700 701 707 710 711 730 734 740 Issue of a DC Issue of a DC continuation of MT 700 Amendment to a Documentary Credit Advice of a Third Bank's DC AdvofThirdBanksDCMT710 continuation Acknowledgement Advice of Refusal Authorisation to Reimburse (Issuing Bk) Purpose

742
747 752

Reimbursement Claim (Claiming bank)

Amendment to MT 740 Authorisation to Pay, Accept or Negotiate

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MT 734 Scope

This message is sent by the issuing bank to the bank from which it has received documents related to a documentary credit. It may also be sent by the bank nominated to pay/accept/negotiate/incur a deferred payment undertaking to the bank from which it has received documents. It is used to advise the Receiver that the Sender considers the documents, as they appear on their face, not to be in accordance with the terms and conditions of the credit and that, consequently, it refuses them for the discrepancies stated. The Sender also states that it is holding the documents at the disposal of, or returning them to the Receiver.

40

MT 740 Scope

This message is sent by the issuing bank to the reimbursing bank. It is used to request the Receiver to honour claims for reimbursement of payment(s) or negotiation(s) under a documentary credit. The MT 740 authorises the reimbursing bank to debit the account of the Sender, or one of the Sender's branches if so indicated, for reimbursements effected in accordance with the instructions in the MT 740.

41

MT 742 Scope

This message is sent by the paying/negotiating bank to the bank authorised to reimburse the Sender for its payments/negotiations. It is used to claim reimbursement of payment(s) or negotiation(s) under a documentary credit, as relevant to the reimbursing bank.

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Reimbursement Payment
Reimbursing Bank

MT 740

MT 742

Issuing Bank

Negotiating Bank

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MT 747 Scope

It is an ammendment to MT740. This message is sent by the bank which has issued an authorisation to reimburse (issuing bank) to the reimbursing bank. It is used to inform the Receiver about amendments to the terms and conditions of the credit relevant to the authorisation to reimburse. The amendment is to be considered as part of the authorisation to reimburse.

44

MT 754 Advice of Payment/Acceptance/Negotiation

This message is sent by the paying, accepting or negotiating bank, or the bank incurring a deferred payment undertaking, to the issuing bank. It may also be sent by the bank to which documents have been presented to a bank that has been nominated to pay/accept. It is used to advise the Receiver that documents were presented in accordance with the credit terms and are being forwarded as instructed.

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MT 756 Advice of Reimbursement or Payment

This message is sent by the issuing bank to the bank from which it has received documents or by the reimbursing bank to the bank from which it has received a reimbursement claim It is used to advise the Receiver about reimbursement or payment, to that bank, for a drawing under a documentary credit for which no specific reimbursement instructions or payment provisions were provided.

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MT 799 Free Format Message

These are authenticated free format messages typically used for L/c and BG cases. Any messages to be sent under L/c / BG which are general in nature, or which is used to convey a discrepancy, a MT799 can be sent.

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Swift for Bank Guarantees

Below MTs are used for BG
MT 760 767 768 769 Purpose Issue or request the issue of BG Amendment to BG Acknowledgement of a BG Message Advice of Reduction or Release

48

MT 760 Guarantee Format Specifications

Status M M M O M M O

Tag 27 20 23 30 40C 77C 72

Field Name Sequence of Total Transaction Reference Number Further Identification Date Applicable Rules Details of Guarantee Sender to Receiver Information

49

Thank You

50

MT 700 LC Format Specifications

Status Tag Field Name Sequence of Total Form of Documentary Credit

M M M
M

27 40A

20
31C

D/C Number
Date of Issue

M
M M

40E
31D 50

Applicabe Rules
Date and Place of Expiry Applicant

MT 700 LC Format Specifications

Status Tag Field Name Beneficiary Currency Code , Amount

M M M
M

59 32B

39C
41D

Additional Amount Covered

Availablewith

M
M M

42C
42D 43P

Draftsat.
Drawee Bank Name & Address Partial Shipments

MT 700 LC Format Specifications

Status Tag Field Name Transhipment Port of Loading / Airport of Dep.

M M M
M

43T 44E

44F
44C

Port of Discharge / Airport of Desti.

Lartest Date of Shipment

M
M M

45A
46A 47A

Description of Goods / Services

Documents Required Additional Conditions

MT 700 LC Format Specifications

Status Tag Field Name Charges Period of Presentation

M M M
M

71B 48

49
53A

Confirmation Instructions
Reimbursing Bank

78

Instruction to Pay/Accepatance/ Negotiating Bank