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End of Day Net Settlement Systems (NSS)
Real Time Gross Settlement Systems (RTGS)
Intra Day Net Settlement (Hybrid) Systems
Continuous Linked Settlement
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Traditional Approach
Amounts are netted and
One amount is paid or received across
settlement accounts with CB at end of
day/period
Creates intra-day exposures
Finality at end of ‘period’
Risk – position built up with a member during
the day will not be settled
So – Collateral, Guarantees, Bilateral
debit/credit caps
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Helps preserve participants liquidity
Usually used for low value payments and
paper based instruments
Lower cost
Examples:
UK cheque clearing, BACS, ACH in USA
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Cheque and Credit Clearing Company process
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Clearing cheques with cheque truncation
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Each payment settles singly and bilaterally
across accounts at the settlement bank, usually
the Central Bank e.g. Bank of England
Eliminates settlement risk
Designed to eliminate Herstatt risk (but does
it?)
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Payments should arrive with value, availability
and finality
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Used for high value/urgent payments

More expensive than NSS
Examples: UK CHAPS, Fedwire in the USA,
CHATS in Hong Kong
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Hong Kong Clearing House Automated Transfer System process (CHATS)
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Intra-day settlement at pre-defined periods
Intra-day finality
Most located in Europe and handle clearing of
euro payments
Examples
- CHIPS (USA)
- CLS
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Payment versus payment system
CLS Services owns CLS Bank Inc, USA an
Edge Act Bank
Main operations in London/USA
Some 5 Trillion USD settled daily (95% of
daily traded volumes)
Eliminates 4 trillion of settlement risk
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Used to settle FX transactions between banks
real time
17 currencies
5 hour window (some exceptions)
Reduces number of bank to bank payments
CLS is a common counter-party, payment
versus payment
Reduces risk and costs of high volumes of large
value funds transfers
Banks will obtain real-time information on
intra-day liquidity
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There are some ‘oddballs’
London US Dollar Clearing
London Currency Settlement Scheme
Euro Clearing
Hong Kong Currency Clearing
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Paper-based
Cash
 Cheques
 Bank transfers or giros
 Postal giros
 Bills of exchange
 Promissory notes
 Banker’s drafts

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Electronic

Funds transfer
 Urgent wires
 Standard EFT
Automated clearing house payments
 Standing order
 Direct debit
 Electronic bills of exchange
 Plastic (credit, charge, cheque guarantee, cash
dispenser, debit)
 Financial EDI

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COMPANY XYZ (HONG KONG)
COMPANY ABC (SINGAPORE)
INVOICE
PAYMENT INSTRUCTION
MT210
ADVICE TO
RECEIVE
Credit Bank
ABC account at
Bank DEF
Debit Co.
ABC account
Debit
Bank UVW
account
Credit Co.
XYZ account
BANK ABC (SINGAPORE)
BANK XYZ (HONGKONG)
MT103
Payment Order
ADVICE OF RECEIPT
Credit Bank DEF
account at Bank
UVW
Debit Bank
ABC account
Credit Bank
XYZ account
at Bank UVW
Debit Bank
DEF account
BANK DEF (USA)
BANK UVW (USA)
MT103
Payment Order
19
CREDIT ADVICE