The Launch of TBF An Important Step in the ... - Banque de France

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The new Transferts Banque de France settlement system (TBF) was
launched on schedule on 27 October. Seven years elapsed between
the presentation of the Banque de France's risk prevention
programme in April 1990 and the start-up of the new system owing
to the need to reach an agreement on the organization of large-value
settlements and finalize the technical aspects.
The start-up of TBF is an important step in the Paris financial
market's preparations for the changeover to the euro.
                                                                                                             MICHEL SPIRI
                                                                           Cashless Instruments and Exchange Systems Division

1. Organization of the Paris Financial Centre
   In accordance with the agreement between the Banque de France and the French Association of
Credit Institutions and Investment Firms (AFECEI1) at the end of 1994 and subject to the total
dematerialization of transfers through the Paris Bankers' Clearing House2 and the planned shutdown of
the Sagittaire system in 1998, large-value payments in French francs are now made through two
payment systems that are accessible via a common technical platform managed by the Interbank
Payments Centre (CRI3 ):
   – The real-time gross settlement system Transferts Banque de France (TBF), implemented by the
Banque de France, which allows intraday finality of payments. It is the cornerstone of the payment
system since it handles the settlements of the other market systems.

  Association française des établissements de crédit et des entreprises d'investissement.
  Chambre de compensation des banquiers de Paris.
  Centrale des règlements interbancaires.

BANQUE DE FRANCE BULLETIN DIGEST – No. 49 – JANUARY 1998                                                                  35
                   The Launch of TBF: An Important Step in the Changeover to the Euro

   – The protected net settlement system (SNP1), which has been operational since February 1997, is
managed by the CRI and has a limited number of participating credit institutions. At the end of the day,
the participants' multilateral balances are transmitted to the TBF system for settlement across their
accounts. By 1 July 1998 at the latest, it should be protected against the risk of failure by one of its
participants, mainly thanks to a collateralized loss-sharing scheme.
   Furthermore, the new RGV2 High-Speed Relit delivery-versus-payment system, developed by the
Sicovam central securities depository, will handle all securities transactions that call for intraday finality
of settlement. Finality of settlement will be achieved by constantly monitoring the cash balances of
participants, which are made up of either transfers of central bank money from TBF or the mobilization
of securities accepted as collateral by the Banque de France. From the beginning of 1998, RGV will
manage the collateral associated with daylight repurchase agreements in central bank money through
   These three new market systems are complementary and their successive launches, spread over
approximately one year, will result in a significant reorganization of the French payment system.

2. The TBF System
   TBF is open to all credit institutions and associated entities, as well as institutions which run
securities accounts.
   As TBF is a real-time gross settlement system, it immediately processes individual payment orders
throughout the day across specific accounts called settlement accounts (CCR3) within the limits of
available balances. These payment orders may be:
     – large-value transfers sent by participants to settle their own or their customers' market transactions;
   – the balances arising from all the so-called "external" payment systems (clearing houses, SIT, SNP
and Sagittaire), the securities delivery-versus-payment systems (Relit, Saturne and RGV) as well as the
Matif and the Monep;
   – central bank transactions, which correspond to the Banque de France's money-market intervention
as well as the French-franc leg of foreign-exchange transactions with the Banque.
     An order received by TBF becomes final as soon as it is posted. The Banque de France bears no risk
as settlement agent since the debit entry in the sending bank's account is only made after the account's
balance has been checked. If it is insufficient, the transfer is placed in a payment queue until sufficient
funds arrive in the account to enable payment. If the transfer has not been executed at the end of the day,
it is rejected. The existence of a credit balance in the receiving bank's account gives it instant access to
the transferred funds without incurring any credit risk. This rapid intraday finality of fund transfers has
enabled, in particular, a significant improvement in the settlement of margin calls by clearing houses
such as the Matif.

  Système net protégé.
  Relit grande vitesse.
  Comptes centraux de règlement.

36                                        BANQUE DE FRANCE BULLETIN DIGEST – No. 49 – JANUARY 1998
                     The Launch of TBF: An Important Step in the Changeover to the Euro

    The conditions under which the participants in a real-time gross settlement system can obtain
intraday liquidity in the form of central bank money are one of the most important determinants of the
smooth operation of such a system. Liquidity requirements result from time-lags between settlements to
be sent (debits) and those to be received (credits). In light of the current low level of reserve
requirements, institutions participating in TBF need to be able to obtain intraday loans by pledging
collateral with the Banque de France in order to ensure rapid settlement of their transactions. To this
end, the participants set up daylight repurchase agreements with the Banque de France. These involve
the securities that the Banque accepts as collateral1, are non-interest-bearing and have no ceilings.
Pending the implementation of the new RGV securities delivery-versus-payment system, daylight repos
are handled by Saturne and Relit. When the TRICP2 system for the computer processing of private-
sector claims comes on stream in mid-1998, TBF participants will also be able to mobilize their claims
on companies with a favourable Banque de France rating to obtain intraday liquidity through TBF.

3. The Launch of TBF
    In June 1997, TBF opened for testing with participating institutions as well as for approval of the
platforms linking them to the system. This preliminary phase highlighted the magnitude of the changes
to be made and prompted the decision to phase the new system in. In order to do this, it was necessary
to set up a transitional organizational framework providing protection against certain technical risks.
However, these arrangements were also a source of certain constraints for both the Banque de France
and the institutions' treasurers.
   On 27 October, TBF started up with 124 participants, 91 of whom were connected. All the planned
functions were operational, but, in accordance with the planned gradual start-up, the system only settled
the balances of one external system, SIT.
    From 24 November, transactions of a second external system centralizing clearing settlements,
called Cerco3, were settled through TBF. This new system was created to aggregate the balances of the
102 provincial clearing houses and the 9 Regional Truncated Cheque Exchange Centres (CREIC4) on a
daily basis, in order to calculate a single national balance for each institution. This system enables credit
institutions to optimize management of liquidity, which previously was often spread across a large
number of accounts with Banque de France branches. Management of institutions is thus simplified and
they require less central bank money.
    There were no technical problems preventing TBF's operation on start-up and none have been
encountered since, and the closing times have gradually neared those that were intended initially. The
start-up phase culminated on 8 December with the settlement of the financial centre's other systems —
 Relit, Saturne, Sagittaire, SNP and the Paris Bankers' Clearing House — through TBF.

  At present, government securities and securities issued by companies with a Banque de France rating of 3 are eligible.
  Traitement informatisé des créances privées.
  Système de centralisation des règlements de compensation.
  Centres régionaux d'échange d'images-chèques.

BANQUE DE FRANCE BULLETIN DIGEST – No. 49 – JANUARY 1998                                                                   37
                The Launch of TBF: An Important Step in the Changeover to the Euro

4. The Next Stages
   The launch of TBF is only one stage, albeit an important one, in the settlement risk reduction
programme and the preparations for the changeover to the euro.
    Once TBF comes fully on stream with the inclusion of all external system settlements, the next
important step will be the start-up of RGV at the beginning of 1998, which will enable the handling of
all securities transactions requiring intraday finality of settlement that currently transit through Relit and
Saturne. This new mechanism will also allow a more efficient and flexible use of collateral in daylight
repos in TBF. It will be supplemented in mid-1998 when the Banque de France implements the TRICP
system for mobilizing private-sector claims.
    The planned changes in market systems for the switch to the euro will undergo comprehensive
testing from the middle of 1998 onwards. These tests will mainly concern the connection of TBF to the
Target settlement system of the European System of Central Banks (ESCB). Use of Target will be
mandatory for settlements within the European Union relating to the single monetary policy, and
optional for interbank settlements. Thanks to this system, TBF participants will be able to send large-
value transfers in euro to any European Union bank participating in another real-time gross settlement

38                                       BANQUE DE FRANCE BULLETIN DIGEST – No. 49 – JANUARY 1998

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