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

Introduction to SWIFT - FIRMA - 18 April 2011 2

 SWIFT history
First
Sibos
First 1978
Operating Centre First corporates
opens Asia Securities join SWIFT SWIFTNet live
1976 1980 1987 1996 2001

1970s 1980s 1990s 2000+

1973 1977 1986 1996 2004
SWIFT SWIFT Value-Added Volumes SWIFTNet
founded goes services exceed 3M migration
Live messages/ complete
1979 day
North
America

Introduction to SWIFT - FIRMA - 18 April 2011 3

 SWIFT - Governance

Oversight National Bank of Belgium and G-10 Central

Banks
Governance
Board

Board committees

National member groups

National user groups

SWIFT members

SWIFT community

Introduction to SWIFT - FIRMA - 18 April 2011 4

Oversight: Co-operating central banks
from the G-10 countries
Lead overseer: National Bank of Belgium

• Bank of Canada • De Nederlandsche Bank

• Deutsche Bundesbank • Sveriges Riksbank

• European Central Bank • Swiss National Bank

• Banque de France • Bank of England

• Banca d' Italia • The Federal Reserve

• Bank of Japan
Introduction to SWIFT - FIRMA - 18 April 2011
System (USA), represented by
the Federal Reserve Bank of New
York and the Board of Governors of
the Federal Reserve System
5
SWIFT - User categories

Non-Supervised
Supervised Entities
Financial active in
Institutions the financial
SWIFT industry
Community

Closed
User
Groups/
Corporates

Introduction to SWIFT - FIRMA - 18 April 2011 6

 SWIFT – A customer-centric user community
Banks
Corporates Payment Systems

Insurance Clearing & Settlement

Companies Systems

Government Broker-Dealers
Institutions

Customer Stock
Securities MI’s Exchanges

Depositories
Payments MI's
IMI's Trustee
Introduction to SWIFT - FIRMA - 18 April 2011
s 7
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 8

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 9

 SWIFT – Board of Directors

Board of Directors

Technology
Banking & Securities
and Standards
Payments Steering
production Committee
Committee Committee
Committee

Community input

Audit Human
& Finance Resources
Committee Committee

Introduction to SWIFT - FIRMA - 18 April 2011 10

Oversight

• SAS 70 report

• Self assessment of performance against the

overseers’ High Level Expectations for SWIFT

Introduction to SWIFT - FIRMA - 18 April 2011 11

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 12

 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 13

Platform – the SWIFT product stack

SWIFT Solutions
Payments Treasury Securities Trade
Standards
Rules

Messaging services
Testing
Directories
Services
&
Interfaces &
Information
Prof
services
Svcs
Secure IP Network (SIPN)

Secure, reliable and resilient platform

Introduction to SWIFT - FIRMA - 18 April 2011 14

SWIFT in figures

Introduction to SWIFT - FIRMA - 18 April 2011 15

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 16

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 17

FIN message categories

• Category 1 – Customer Payments & Cheques (16 messages)

• Category 2 – Financial Institution Transfers (16 messages) 4
ISO
15022
• 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 53
ISO
(19 messages) 15022

• 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)

Name of Presentation – Confidentiality: External 18

 Standards
The current and future message landscape
 Payments, Cash and Trade (127
 Payments, Cash and Trade (111 messages)
messages)  Securities, FX and Derivatives (160
 Securities, FX and Derivatives (112 messages)
messages) 287 completed messages
- including 57 ISO 15022 messages
 Service & System Messages (66)
346 live messages

Payments, Cash, Trade and Cards

 Payments, Cash and Trade (132

messages)
 Securities, FX and Derivatives (173
Securities, FX and Derivatives
messages)
> 300 messages in progress

Name of Presentation – Confidentiality: External 19

ISO 20022 messages
287 completed messages

Payments, Cash, Trade and Cards Securities, FX and Derivatives

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

Name of Presentation – Confidentiality: External 20

ISO 20022: The standards community

• Registration Management Group, RMG

68 financial
– Overall governance, court of appeal professionals
– Approve business justifications for new standards from 21
countries and 12
– Create Standard Evaluation Groups (SEGs) liaison
organizations
• 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 21

ISO 20022 messages
287 completed messages

Payments, Cash, Trade and Cards Securities, FX and Derivatives

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

127 messages 160 messages

Name of Presentation – Confidentiality: External 22

SWIFT in Securities

Introduction to SWIFT - FIRMA - 18 April 2011 23

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 24

 Securities settlement – a typical scenario

MT 502 block Order

MT 513 Advice of Execution
Investment Broker
manager MT 514 Allocation (1) 300 dealer
Client 1 PEFIGB22 MT 515 Confirmation (1) 300 BDAPGBPP
= 300
shares
MT 509 Status (optional, to DK)

MT 543 Deliver
MT 541 Receive Against Payment
Against Payment

MT 541 Receive Against Payment

MATCH
Custodian CSD
GLOBGB22 CRSTGB22

Introduction to SWIFT - FIRMA - 18 April 2011 27

 Securities settlement – a typical scenario
MT 502 block Order
MT 513 Advice of Execution
Investment Broker
manager MT 514 Allocation (1) 300 dealer
Client 1 PEFIGB22 MT 515 Confirmation (1) 300 BDAPGBPP
= 300
shares
MT 509 Status (optional, to DK) MT 544
Confirmation
Delivery

MT 543 Deliver
MT 541 Receive Against Payment
Against Payment

MT 541 Receive Against Payment

MATCH
Custodian MT 545 Confirmation Receipt CSD
GLOBGB22 CRSTGB22
Custodian a/c Broker a/c
Shares
Introduction to SWIFT - FIRMA - 18 April 2011 28
$$$$
 Securities settlement – a typical scenario
1 MT 502 block Order
MT 513 Advice of Execution 2
Investment Broker
manager 3 MT 514 Allocation (1) 300 dealer
Client 1 PEFIGB22 MT 515 Confirmation (1) 300 4 BDAPGBPP
= 300
shares 9
MT 545 MT 544
Confirmation Confirmation 8a
Receipt Delivery
5b
5a MT 543 Deliver
MT 541 Receive Against Payment
Against Payment
6
MT 541 Receive Against Payment
MATCH 7
Custodian MT 545 Confirmation Receipt CSD
GLOBGB22 CRSTGB22
8a
Client 1 a/c Custodian a/c Broker a/c
Shares + Shares
$$$$ -
Introduction to SWIFT - FIRMA - 18 April 2011
$$$$ 29
 NEW

Trade MT 3xx OTC Equity &

messages Fixed Income

Accord for Securities

matching

Accord for Treasury

Transactions
FX & currency
on options For Prime &
Accord Loans and Executing
deposits Brokers and
Custodians
OTC
derivatives Community
+ 450 driven
customers
Live since May
Independent of
2009
counterparty
 Accord for Securities – Prime/Executing Broker
Solution for hedge fund transactions
Hedge Fund Executing
Broker
5
2. Real time status
o rd MT
51
c
updates + exception
handling on GUI + full Daily Trade Ac 9 98
MT
reporting in MT 998 report
5 15
MT
9 98
MT
Prime
1. Automated
Broker pre-matching,

4. Settlement
OK
3 . PSET agents’ local
code is x-ref to a BIC
in Accord
Custodia

Custodian I L ! n

Introduction to SWIFT - FIRMA - 18 April 2011

Agent CSD F A
(PSET)
Agent
31
 Accord for Treasury FX, FX Options,
Single-slide overview Money markets,
OTC Derivatives,
Deal Commodities
Confirmations:
(MT 300,305,306,320,
330,340,341,360,
361,362,392, MT 600)
Accord
Subscribers (>475
in 70 countries)
• Banks Accord
• Brokers subscriber or
• Custodians SWIFT non-
• Fund mgrs subscriber
• Corporates Copies of non-SWIFT
(strong growth)
Copies of data: fax, e-mail, e-FX
confirmations portals, Broker feeds,
• Real-time reporting & Reuters, etc.
exception
handling
• Integration available for Accord
various • Real-time Confirmation Matching Service
Back-Office Systems • 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 32

SWIFT in Payments and Cash Management

Introduction to SWIFT - FIRMA - 18 April 2011 33

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 34

Payments and cash management processes

Customer-to-Bank Interbank Bank-to-Customer

INITIATION

Customer Credit Transfer CLEARING

Initiation &
SETTLEMENT
Customer Direct Debit
Initiation

Payment Status Report

ACCOUNT REPORTING ACCOUNT REPORTING

B2C Account Report B2C Account Report

B2C Account Statement B2C Account Statement

B2C DebitCreditNotification B2C DebitCreditNotification

Introduction to SWIFT - FIRMA - 18 April 2011 35

 High level message flow
(Wire transfers) Settlement path can
change based on
information exchanged
using SWIFT messages

Originator Community Bank IBK # 1 IBK # 2 Beneficiary’s Bank Beneficiary

Payment
Initiation
SETTLEMENT
Fed

SWIFT MESSAGING

Introduction to SWIFT - FIRMA - 18 April 2011 36

 Cover payments – Timing aspects
Pay Pay
$1000 $1000
Mr.
Mr.
Jones
Jones It’s only London It’s only
London 03:00
03:00
ET!
103 202 ET!
Bank A
Bank A
London
London Bank B
09:00 CET Bank B 09:00 CET
New York
New York

103 202 09:00

103 09:00 09:00
CET ET
ET

Bank C 910 Bank C

103 New York
New York
09:01
09:01
ET
ET
It’s Here it’s
Bank D Bank D
22:01! 16:00
Tokyo Tokyo

Mr. Ueda Mr. Ueda

Tokyo Tokyo

Introduction to SWIFT - FIRMA - 18 April 2011 37

 Cover payments – Cost aspect
Pay Pay
$1000 $1000
Mr.
Mr.
Jones
Jones
London
London Charges
$20 No customer
103 202 charges
Bank A Bank A
London London
$1000 Bank B
$1000 Bank B
New York
New York

103 202 $1000

103
$980
Charges $1000 No customer
$15 charges

Bank C 910 Bank C

103 New York
New York
$1000
$965 Charges
Charges $10
$10 Bank D
Bank D
Tokyo Mr. Ueda
Tokyo Mr. Ueda
Mr. Ueda Mr. Ueda $990
$955 Tokyo
Tokyo

Introduction to SWIFT - FIRMA - 18 April 2011 38

Q&A

?
Introduction to SWIFT - FIRMA - 18 April 2011 39
 Thank you

Introduction to SWIFT - FIRMA - 18 April 2011 40