Foreign Exchange Settlement Practices in Australia Annex B Sample Questionnaire

RESERVE BANK OF AUSTRALIA

CONFIDENTIAL

SURVEY OF FOREIGN EXCHANGE SETTLEMENT PRACTICES – APRIL 1997

Institution ...................................

Contact name ...................................

Contact telephone no ...................................

Please complete this survey (affixing additional sheets where there is insufficient space) for the calendar month of April 1997 and return it no later than 26 May 1997 to:

Payments Systems Section
Financial System Department
Reserve Bank of Australia
GPO Box 3947
SYDNEY NSW 2001

Any questions may be directed to either Bernie Egan on 95518705 or Jeff Grow on 95518776.

SECTION I: GENERAL SETTLEMENT PRACTICES

1. Please indicate the currencies in which your institution, on its Australian books, settled foreign exchange transactions (including transactions generated through OBUs and vostro accounts), on any day from 1 April to 30 April 1997.

□ Australian Dollar (AUD)

□ US Dollar (USD)

□ Japanese Yen (JPY)

□ New Zealand Dollar (NZD)

□ Canadian Dollar (CAD)

□ German Mark (DEM)

□ UK Pound Sterling (GBP)

□ Swiss Franc (CHF)

□ French Franc (FRF)

□ European Currency Unit (XEU)

□ Other Asian currencies. Please specify ...................................

□ Other European currencies. Please specify ...................................

□ Other currencies. Please specify ...................................

2. For each of the currencies identified above, please indicate, using ‘A’, ‘B’ or ‘C’, the principal method of settlement. Where:

• A indicates that correspondent banking services in the currency were provided by a local clearing bank that is not affiliated with your institution other than on a commercial basis;
• B indicates that correspondent banking services in the currency were provided by a related entity of your institution (eg separately incorporated parent or subsidiary); and
• C indicates that your institution (include branches/head office, but not a separately incorporated parent or subsidiary) settled itself.

(For example, an Australian bank that uses its UK subsidiary to settle its GBP transactions should insert ‘B’ under ‘GBP’, whereas if it used its London branch it would insert ‘C’. The Australian branch of a US bank, ‘XYZ Bank Inc’, settling its GBP transactions using the London branch of ‘XYZ Bank Inc’ would insert ‘C’ under GBP, whereas if it used the UK subsidiary of ‘XYZ Bank Inc’ it would insert ‘B’.)

3. This question is seeking information on the duration of foreign exchange settlement exposures for the various currencies, using the contracted value date, ‘V’, as the measurement base.

Institutions may issue instructions to correspondents progressively during the day and correspondents, in turn, may have flexible arrangements for the settlement of transactions. Accordingly, if precise measurement is not possible this question may be answered on a best endeavours basis, but please identify where this is done and provide an explanation.

For each of the currencies identified in Question 1, please indicate (in the following table):

1. the time and day (eg 1530 on V-2) when payment instructions are routinely issued by your institution;
2. the time and day (eg 1700 on V-1) when these payment instructions can no longer be cancelled unilaterally – ie require the consent of your correspondent bank, or in terms of the local clearing house rules the beneficiary or its bank;
3. the time and day (eg 1700 on V) when you routinely receive, with finality, payments due to you (including, where appropriate, book-entry transfers at correspondents); and,
4. the time and day (eg 1200 on V+1) when you routinely identify final and failed payments due to you.

Please provide all answers in Australian Eastern Standard Time (AEST).

Briefly outline your institution's systems for identifying and then acting on delays to these routine times, where appropriate, expressing the various steps in terms of the “V” measurement base. Please provide details of any significant delays that occurred during April.

4. For each of the currencies identified in Question 1, please indicate the total gross value of foreign exchange settlement receipts and payments made by your institution from 1 April until 30 April 1997 (expressed in millions of the relevant currency). Where payments have been bilaterally or multilaterally netted prior to settlement, please estimate the initial underlying gross settlement obligation in each currency.

SECTION II: AUSTRALIAN DOLLAR SETTLEMENTS

5. Please indicate how your institution routinely settles foreign exchange related AUD transactions. Please estimate the proportion of the AUD amounts settled that were processed through each of the identified payment systems during April 1997.

6. This question is seeking information on the duration of settlement exposures in AUD where Australian institutions settle on behalf of overseas institutions (ie the AUD business emanating from vostro accounts). Does your institution settle foreign exchange transactions in AUD for overseas correspondents (including related institutions, eg overseas parent or subsidiary)? YES/NO If yes, please indicate:

1. the time and day (eg 1530 on V-2) when payment instructions for AUD are routinely issued to you by offshore correspondents;
2. the time and day (eg 1700 on V-1) when these payment instructions can no longer be cancelled unilaterally – ie require either your consent or that of the beneficiary or its bank;
3. the time and day when your customers routinely receive, with finality, payments due in AUD (including, where appropriate, book-entry transfers across accounts held at your institution); and,
4. the time and day (eg 1200 on V+1) and method (eg SWIFT, fax) when you routinely notify overseas correspondents of final and failed AUD payments due to them.

Please provide all answers in Australian Eastern Standard Time (AEST).

SECTION III: SETTLEMENT RISK MANAGEMENT PRACTICES

This section seeks brief open-ended responses on the settlement risk practices currently employed by your institution and its views on how these risks can be reduced. Please provide written answers on a separate sheet.

Limit-setting

7. Does your institution set limits on the amount of foreign exchange settlement exposure it is prepared to accept from an individual counterparty? YES/NO

If so:

1. are they global limits or is each branch/subsidiary of your institution delegated its own limit structure?
2. describe how limits, and any ensuing exposures, are:

• set;
• measured;
• monitored; and
• reported internally within your institution.

Please include in your response the process and timeframe for notifying dealers of reductions in limits.

Netting arrangements

8. Does your institution engage in formal or informal payments netting arrangements for foreign exchange settlements? YES/NO

If so:

1. are they restricted to a class of counterparty, eg banks, other financial intermediaries or non-bank customers?
2. which currencies do such netting arrangements cover?
3. are they organised on a bilateral and/or multilateral basis?
4. do they involve the substitution/novation of credit exposure to a central counterparty? If so, to whom?
5. do these arrangements include close-out netting provisions in the event of default?

Reducing foreign exchange settlement risks

9. From the perspective of your business, would you like to make any comments on the BIS Report on Settlement Risk in Foreign Exchange Transactions that was released in March 1996? In particular do you have any comments on the methodology outlined on pages 33–35?

10. Outline any measures that your institution is taking to reduce settlement risk in foreign exchange transactions.

11. This question is seeking an indication of the likely effects, if any, of current and planned/proposed risk-reduction measures (domestically and internationally) on foreign exchange settlement processes.

11. What do you consider to be the likely impact of real-time gross settlement (RTGS) on AUD foreign exchange settlements? Has the introduction of RTGS elsewhere in the world affected your own settlement practices for particular currencies (eg. do correspondent banks now impose stricter unilateral cancellation deadlines)?
12. From the perspective of your business, do you think there is a useful role for multilateral bodies, such as ECHO, Multinet or the proposed Group of 20 CLS Bank? Do you consider that they will gain the critical mass to be able to influence international settlement practices? Please explain your reasons.

1. Are there issues on which your bank would like to see central banks and commercial banks co-operate to reduce settlement risk in foreign exchange transactions?