PAYMENT SETTLEMENT

SYSTEM IN US

PRESENTED BY:
HENINLE MAGH
ROLL-7
M.COM(E-CO)4thth
CONTENT

 INTRODUCTION
 IMPORTANCE OF PAYMENT SETTLMENT
 INTERBANK EXCHANGE AND
SETTLEMENT CIRCUITS
 RTGS
 TWO TYPES OF EFT IN US
 FEDWIRE
 CHIPS
 CHAPS
 ACH
 BIBLIOGRAPPHY
INTRODUCTION
 IMPORTANCE OF SETTLEMENT
SYSTEM
The bulk of the dollar value of these payments are processed
electronically and are generally used to
purchase, sell, or finance securities transactions;
disburse or repay loans;
settle real estate transactions;
and make large-value.
OBJECTIVES
Quick settlement
Cost effectiveness
To facilitate the market settlement system.
 INTERBANK EXCHANGE AND
SETTLEMENT CIRCUITS

In the United States, interbank payments are

processed and settled primarily through the
following mechanisms:
 Cheque clearing,
 ACH,
 Card networks,
 Same-day electronic funds transfer systems (Fed
wire and CHIPS) and
 The Federal Reserve’s National Settlement
Service (NSS).
Cheque clearing systems
Depository institutions paid an estimated 42.5 billion cheques in the United
States during 2000.

Approximately 30% of those cheques were deposited in the same

institution on which they were drawn and, therefore, were settled via
accounting entries on the books of the paying institution.

The remaining 70% were cleared and settled through interbank

mechanisms.

Approximately 43% of the cheques cleared through these interbank

mechanisms were cleared through direct exchange(presentment), local
cheque clearing houses and correspondent bank networks; the remainder
were cleared through the Federal Reserve Banks.
ACH
The ACH Network is a batch processing, store-and-forward
system, governed by The NACHA Operating Rules, which
provide for the interbank clearing of electronic payments for
participating depository financial institutions

Transactions received by the financial institution during the

day are stored and processed later in a batch mode. Rather
than sending each payment separately.
Card networks
Credit card, ATM and POS associations provide
communications, transaction authorisation and interbank
financial settlement for their member financial institutions.
Bank card networks are typically owned by a group of
financial institutions that provide initial capital and establish
uniform operating policies, procedures and controls.
Some major networks are owned by non-bank companies.
The largest credit card and signature-based debit card
networks in the United States are Visa and MasterCard.
Federal Reserve National Settlement Service
(NSS)

The Federal Reserve allows participants in private

clearing arrangements to settle transactions on a net
basis using account balances held at the Federal
Reserve.

Users of the Federal Reserve’s National

Settlement Service (NSS) include cheque clearing
houses, ACH networks and some bankcard
processors.
 REAL TME GROSS SETTLEMENT
(RTGS)

 Real time gross settlement systems (RTGS) are funds transfer

systems where transfer of money or securities takes place from one
bank to another on a "real time" and on "gross" basis.
Settlement in "real time" means payment transaction is not subjected
to any waiting period. The transactions are settled as soon as they are
processed.
"Gross settlement" means the transaction is settled on one to one
basis without bunching or netting with any other transaction. Once
processed, payments are final and irrevocable.
 LIST OF COUNTRIES AND THEIR RTGS SYSTEM
NAME OF RTGS SYSTEM
COUNTRIES
AUSTRALIA RITS (Reserve Bank Information and Transfer System)
BULGARIA RINGS (Real-time Interbank Gross-settlement System)
CHINA CNAPS (China National Advanced Payment System (also called "Super
Online Banking System)
HONGKONG CHATS (Clearing House Automated Transfer System)

LISTING OF COUNTRIES AND THEIR RTGS SYSTEM

MALAYSIA RENTAS (Real Time Electronic Transfer of Funds and Securities)

INDIA RTGS ( Real Time Gross Settlement)

US FEDWIRE
NEW ZEALAND ESAS (Exchange Settlement Account Settlement)
SWITZERLAND SIC (Swiss Interbank Clearing)
UK CHAPS Clearing House Automated Payment System
TWO TYPES OF ELECTRONIC FUND
TRANSFER

FEDWIRE CHIPS
FEDWIRE
Fedwire Funds Service, is a real-time gross settlement
system that enables participants to initiate funds transfer that
are immediate, final, and irrevocable once processed,
provided by The Federal Reserve Banks .
 Depository institutions and certain other financial
institutions that hold an account with a Federal Reserve
Bank are eligible to participate in the Fedwire Funds
Services.
In 2008, approximately 7,300 participants made Fedwire
funds transfers.
The Fedwire Funds Service is generally used to make
large-value, time-critical payments.
 PROCESS
An institution that maintains an account with a Reserve Bank generally can
become a Fed wire participant.
Participants use Fed wire to instruct a Reserve Bank to debit funds from the
participant's own Reserve Bank account and credit the Reserve Bank account of
another participant.
Fedwire processes and settles payment orders individually throughout the
operating day.
Payment to the receiving participant over Fed wire is final and irrevocable when
the amount of the payment order is credited to the receiving participant's account
or when the payment order is sent to the receiving participant, whichever is
earlier.
Fed wire participants send payment orders to a Reserve Bank on line, by
initiating an electronic message, or off line, via telephone. Payment orders must be
in the proper syntax and meet the relevant security controls.

An institution sending payment orders to a Reserve Bank is required to have

sufficient funds, either in the form of account balances or overdraft capacity, or a
payment order may be rejected.
OPERATING HOURS
The Fed wire Funds Service business day begins at 9:00 p.m.
eastern time (ET) on the preceding calendar day and ends at
6:30 p.m. ET, Monday through Friday, excluding designated
holidays.
Under certain circumstances, Fed wire Funds Service
operating hours may be extended by the Federal Reserve
Banks.
PRICING

Fed wire transaction fees are charged to both the originating

institution (debit side) and receiving institution (credit side).
Fees are based on the volume of transfers, ranging from 9
cents to 29 cents per transfer, per institution.
A surcharge of $30 is charged to initiate or receive an
offline transfer.
Electronic access fees are assessed separately.
What is CHIPS?
The Clearing House Interbank Payments System (CHIPS) is
the main privately held clearing house for large-value
transactions in the United States,

settling well over US$1 trillion a day in around 250,000

interbank payments.

Together with the Fed wire Funds Service (which is

operated by the Federal Reserve Banks), CHIPS forms the
primary U.S. network for large-value domestic and
international USD payments (where it has a market share of
around 96%).
Payment orders are also sent over CHIPS for the
purpose of adjusting correspondent balances and
making payments associated with commercial
transactions, bank loans, and securities transactions.

Since January 2001, CHIPS has been a real-time

final settlement system that continuously matches,
nets and settles payment orders.

CHIPS processes over 285,000 payments on an

average day.
 HOW ARE CHIPS DIFFERENT FEDWIRE?

 CHIPS transaction are characteristically different from FEDWIRE ones,

in that cancellation is possible. i.e., all payments for the day are finalised
only when the net balances have been settled through FEDWIRE in the
settlement . Therefore, if for some reason the final settlement is not carried
out, all transactions for the day with that bank will be cancelled.

CHIPS also differs from the FEDWIRE transaction service in several

respects.
 it is cheaper than the FEDWIRE service and
 also the dollar amount required to use this service are lower.

Privately owned by member banks and has only 46 members (as of 2006)
compared to approximately 50,000 members that use the FEDWIRE
service.
CHAPS
CHAPS (Clearing House Automated Payment System) is an
electronic transfer system for sending same day value
payments from bank to bank.

It operates in partnership with the Bank of England in

providing a payment and settlement service for banks.

The CHAPS Clearing Company had operated two separate

Clearings, CHAPS Sterling and CHAPS Euro until 16 May
2008 when CHAPS Euro was terminated.
The CHAPS Sterling payment system, developed
in 1984, is one of the largest real-time gross
settlement systems in the world, second only to Fed
wire in the United States.

 CHAPS offers its members and their participants

an efficient, risk-free, reliable same-day payment
mechanism.

 Every CHAPS payment is unconditional,

irrevocable and guaranteed
 AUTOMATED CLEARING HOUSE (ACH)

 The electronic funds transfer network that enables you to

make a direct transfer of money from your bank account to
your mutual fund, provided your bank participates in the ACH.

Automated Clearing House (ACH) is the name of an

electronic network for financial transactions in the United
States .
ACH processes large volumes of both credit and debit
transactions which are originated in batches.
Rules and regulations governing the ACH network are
established by NACHA-The Electronic Payments Association,
formerly the National Automated Clearing House
Association, and the Federal Reserve (Fed).
 BIBLIOGRAPHY
BOOK :
 Bhalla, V.K (2nd ed.).International Financial Management, Anmol Publication
pvt.ltd: New Delhi

WEBSITE
Retrieved from:
http://ideas.repec.org/p/ess/wpaper/id1686.html
http://www.rbi.org.in/scripts/FAQView.aspx?Id=73
http://www.buzzle.com/articles/importance-of-payment-and-settlement-systems-
in-forex-market.html
http://en.wikipedia.org/wiki/Real_Time_Gross_Settlement
http://www.chips.org/docs/033915.pdf 
http://www.answers.com/topic/clearing-house-interbank-payments-system
http://wfhummel.cnchost.com/paymentsystems.html 
http://www.mbaknol.com/managerial-economics/settlement-of-transactions-in-
foreign-exchange-markets/ 
http://findarticles.com/p/articles/mi_m4126/is_n12_v81/ai_17936556
http://www.fms.treas.gov/eft/index.html
THANK YOU