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P A Y M E N T S Y S T E M S

IN THE EUROPEAN UNION

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PAYMENTS

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European Monetary Institute, 1996Postfach 10 20 31, D-60020 Frankfurt am Main

All rights reserved . With the except ion of rights granted by statutory law, no part of thi s publication may be

reproduced, translated, stored in a retrieval system, or transmitted in any form by any means, electronic,

mechanical, photocopying, recording or otherwise, without the prior written permission of the European Monetary

Institute. Photocopying for educational and non-commercial purposes permitted provided the source is

acknowledged.

ISBN 92-9166-000-0

Printed by Kern and Birner GmbH & Co, D-60486 Frankfurt am Main.

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Page

Foreword

Introduction

Chapters 1. Belgium 1

2. Denmark 47

3. Germany 83

4. Greece 133

5. Spain 171

6. France 2217. Ireland 267

8. Italy 315

9. Luxembourg 363

10. Netherlands 389

11. Austria 433

12. Portugal 477

13. Finland 521

14. Sweden 571

15. United Kingdom 609

16. Cross-border payment and securitiessettlement systems 663

Annexes 1. Methodology for the statistical data 707

2. Comparative tables 717

3. Glossary 739

4. Editorial Group members 759

In accordance with Community practice, countries are listed in the Blue Book using the alphabetical order of

the nat ional l anguages.

Data used in the Blue Book are as of end-1994 unless otherwise indicated.

Convention used in the tables:

- Nil

n.a. Not available or not applicableneg. Negligible

Contents

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Foreword

banking. Indeed, central banks face the tasknot only of controlling the volume of moneyin the economy, but also of ensuring thatmoney circulates smoothly among economicagents. In this context, increasing attention isdevoted to the potential risks associatedwith the functioning of payment systems andcentral banks are committed to contributingto the reduction of such r isks.

The need for a comprehensive description of

payment and securities settlement systems inthe European Union is even greater in viewof the advent of European Monetary Union,which will in particular require a minimumlevel of integration of EU payment systems inorder to serve the needs of the singlemonetary policy. However, the Blue Book isnot an instrument reserved solely for the useof central banks. Other institutions involvedin discussing payment systems issues, or inestablishing or using payment systems

infrastructures, may also benefit from itsextensive information.

This book has been produced in collaborationwith the EU central banks. In this context Ishould like to take this opportunity to thankthe EU centra l banks for their valuablecontributions to the preparation of this sourceof reference.

Frankfurt, 11th April 1996

Alexandre Lamfalussy,President

In September 1992 the Committee ofGovernors of the Central Banks of theMember States of the European EconomicCommunity published a descriptive guide tothe payment systems in the twelve ECMember States which has come to be knownas the Blue Book. This second edition,published by the European Monetary Institute,contains revised texts and data which takeinto account the fundamental changeswitnessed in the intervening period. Those

who wish to compare this version of the BlueBook with its predecessor will realise howquickly EU payment systems are changing inorder to keep up with developments, inparticular:

the entry into force of the Single EuropeanAct on 1st January 1993;

the entry of three additional membersinto the European Union (Austria, Finland

and Sweden) on 1st January 1995;

the decision of the EMI Council in May1995 to create TARGET, a system linkingthe domestic real-t ime gross settlement(RTGS) systems across the EuropeanUnion, with the primary aim of enhancingthe conduct of monetary policy in StageThree of EMU; the development ofTARGET is supported by the EU centralbanks collective decision, taken inNovember 1993, to implement real-timegross settlement systems in all EUcountries.

The importance of payment systems inmodern economies has grown considerablyover the last two decades, partly as a resultof the very rapid growth in the volume andthe value of payments stemming from money,foreign exchange and financial markets.Payment systems are at the heart of central

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Introduction

The intention behind the Blue Book is toprovide a comprehensive description of theprincipal payment and securities settlementsystems operating in the Member States ofthe European Union (EU) on both a domesticand a cross-border basis. The range ofschemes covered is not exhaustive and theselection is not intended to indicate theirrelative importance.

For historical reasons and due to differences

in the legal, regulatory and institutionalenvironment, the variety and structure ofpayment systems differ from country tocountry. However, there are also manysimilarities which, in view of the creation ofmonetary union, are likely to increase.

In order to allow straightforward comparisonof the various payment systems, the followingfifteen country chapters follow a commonlyagreed outline.

Each one consists of four sections: the firstsection provides an overview of theinstitutional aspects which have an impact onpayment systems and describes briefly themajor parties involved. The second sectiondeals with the payment media used by non-banks and recent developments in the areaof retail payments. The third section focuseson the interbank exchange and settlementcircuits, and the fourth section describessecurities settlement systems, including theunderlying institutional and market aspects.

In comparison with the previous edition ofthe Blue Book, the third section of eachcountry chapter has been substantiallyaugmented. This reflects first the growingimportance attached by central banks toreal-time gross settlement (RTGS) systems.In November 1993 the EU central bankspublicly stated that such systems should bepromoted in order to reduce systemic risks

substantially in the processing of large-valuepayments, and made a collective decision to

implement RTGS systems in all EU countries.The development of RTGS systemsaccelerated following the decision toimplement TARGET, which will involve thelinking of the domestic real-time grosssettlement systems being developed by theEU central banks in order to meet theEuropean Central Banks payment systemsneeds for the implementation of the commonmonetary policy. Furthermore, because EUcentral banks consider that their oversight

duties require a good knowledge of thefunctioning features of all funds transfersystems, the third section of each countrychapter also contains a description of retail(i.e. small-value) payment systems which ismore detailed than in the previous edition.

In addition, the fourth section of each countrychapter provides more detailed descriptionsof the domestic and European securitiessettlement systems, reflecting the growing

links which exist between payment andsecurities, such as the development of deliveryversus payment mechanisms and theincreasing use of collateralisation in paymentsystems.

Each country chapter includes a list ofabbreviations and a set of statistical data. Thelatter are presented as time series in order tofacilitate the analysis of recent developments.Where possible, these tables follow thepresentation used in the report published inDecember 1993 by the Bank for InternationalSettlements on Payment Systems in theGroup of Ten Countries (the so-called RedBook). However, some tables have beenmodified and extended in order to reflectthe more harmonised situation in Europeand to serve as a reference for decisionsboth on the further integration of EU paymentsystems and with regard to the singlemonetary policy.

In addition to the country chapters, a finalchapter deals with cross-border payment

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arrangements. These have undergonesubstantial changes in recent years, mainly

driven by the wish both to reduce the risksinherent in large-value payment systems, andto meet the needs of European consumersfor the more efficient execution of cross-border retail payments.

Finally, the annexes contain a methodologyfor the statist ical data, cross-bordercomparative tables, a glossary and a list ofmembers of the Editorial Group responsiblefor the co-ordination of this edition.

The structure and content of this secondedition of the Blue Book are influenced bythe analysis of a number of payment issuescarried out in recent years by the EU central

banks. The results of this analysis were madeavailable to a wider public in various reports

published by the former Committee ofGovernors of the Central Banks of theMember States of the European EconomicCommunity and by the EMI: Issues ofcommon concern to EU central banks in thefield of payment systems, September 1992;report on Minimum Common Features forDomestic Payment Systems, November1993; report on Prepaid Cards, May 1994;The TARGET System, May 1995; and theannual reports on Developments in EUpayment systems. Moreover, reflecting the

collaboration between the Group of Tencountries and the EMI working groups,whose membership overlaps to some extent,this volume also draws on the Red Book.

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Contents

List of abbreviations 4

Introduction 5

1. Institutional aspects 6

1.1 General legal aspects 6

1.2 Financial intermediaries that provide payment services 7

1.3 The role of the central bank 7

1.4 The role of other private and public sector bodies 10

2. Payment media used by non-banks 11

2.1 Cash payments 11

2.2 Non-cash payments 11

2.3 Recent developments 16

3. Interbank exchange and settlement systems 17

3.1 General overview 17

3.2 Real-time gross settlement (RTGS) system: ELLIPS 19

3.3 Large-value payment system: Clearing House of Belgium 20

3.4 Retail payment system: CEC 22

4. Securities settlement systems 24

4.1 Institutional aspects 24

4.2 Summary information on securities markets 27

4.3 Securities Clearing System of the NBB 28

4.4 CIK 314.5 BELFOX 34

5. Statistical data 37

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List of abbreviations

BCC Bank Card Company

BELARFI Belgian Financial Architecture

BELFOX Belgium Futures and Options Exchange

BFC Banking and Finance Commission - Commission bancaire et financire(CBF) / Commissie voor het Bank- en Financiewezen (CBF)

BSE Brussels Stock Exchange -Socit de la Bourse de Valeurs Mobilires deBruxelles S.C. / Effectenbeursvennootschap van Brussel C.V.

CEC Centre for the Exchange of Operations to be Cleared - CentredEchange dOprations Compenser du Systme Financier Belge /Uitwisselingscentrum van te Verrekenen Verrichtingen van het BelgischFinancieel Systeem (UCV)

CIK Caisse Interprofessionnelle de Dpots et de Virements de Titres SA /Interprofessionele Effectendeposito- en Girokas N.V.

CL-CV Cooprative de Liquidation / Coperatieve tot Vereffening

ELLIPS Electronic Large-value Interbank Payment System

EMSS Electronic Matching and Securities Settlement

EOC Euroclear Operations Centre

IRG-HWI Rediscount and Guarantee Institute - Institut de Rescompte et de Garantie /Herdiscontering- en Waarborginstituut

NBB National Bank of Belgium - Banque Nationale de Belgique (BNB) /Nationale Bank van Belgi

POM Public Order Member

PPS Protected Payment System

S.W.I.F.T.-CLR S.W.I.F.T.-Clearing

SCC Securities and Coupons Centre

STN Switched Telephone Network

UEBL-BLEU Belgian-Luxembourg Economic Union - Union Economique

Belge-Luxembourgoise / Belgisch-Luxemburgse Economische Unie

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Introduction

been steadily declining for several years. Thisinstrument is tending to be replaced mainlyby POS transactions with debit cards. Thelatest developments include the extension oftelebanking as well as new electronic moneyinstruments, notably the recent introductionon the Belgian market of a multi-purposeprepaid card.

The organisation of the Belgian paymentsystem will be thoroughly modified by the

forthcoming launch of a new automatedsystem designed for the real-time grosssettlement of large-value payments. Thissystem will limit the risks involved in interbankpayments and constitutes the last importantstage towards the complete automation ofthe national payment system.

The Belgian payment system is characterisedby a very high level of automation. Thisparticular situation is the result of effortsmade by the credit institutions since theearly 1970s, with a view to rationalising thetreatment of payment operations. Very earlyon, interbank co-operation led to severalstandardisation agreements, on which theentire process of automation is based.

The NBB has been very closely involved in

these efforts. Besides its more tradit ionalrole as settlement agent, it assumes theoperational management of the interbanksettlement systems.

Credit transfers and related instruments arestill predominant among the means ofpayment. However, the use of cheques has

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1. Institutional aspects

These principles were likely to prevent thepart ic ipat ion of the Belg ian banksininternational interbank netting systems,thereby depr iving them of the advantageswhich might result from the consequentreduction in settlement costs and in creditand solvency risks involved in internationalf inancia l operat ions. Moreover , theuncertainties which existed in Belgian law onthe subject of the poss ibil ity of relying uponnetting agreements against third parties

reduced the attraction of locating the centreof an international netting system in Brussels.

This is why express recognition is given,through Article 157 of the law on the statusand supervision of credit institutions, to thelegal validity of bilateral or multilateral set-offagreements for claims between creditinstitutions themselves and between creditinstitutions and a clearing house, as well as toclose-out agreements (express termination

clauses in the event of bankruptcy or otherdefault situations). These agreements arelegally binding and enforceable against thirdparties (including a liquidator), subject to theconditions defined in this provision. Inparticular, it is clear that it is no longerrequired that the claims to be set off shouldbe related. The article also states thatpayments made by or to a credit institutionon the date on which it has been declaredbankrupt will be valid if they preceded thetime of the bankruptcy decision or if theywere made without being aware of the factthat the credit institution was bankrupt .

The financial sector is also covered by thegeneral anti-trust regulation (Law of 5thAugust 1991) which forbids practices whichrestrict competition. The description of thisconcept has largely been based on Articles85 and 86 of the EEC Treaty.

1.1 General legal aspects

Apart from one legal text which deals withcheques (Law of 1st March 1961), there isno specific legislation concerning paymentinstruments or systems. There is, therefore,no specific legal provision governing othertradit ional payment med ia or electron icpayment systems. Relations between creditinstitutions, consumers and retailers aregoverned by private contracts. On a more

general level, the problem of authenticationin systems that do not involve a manualsignature is not covered by specific legislation.

A new law on the status and supervision ofcredit institutions was adopted on 22ndMarch 1993. The purpose of this law is toprotect the savings of the public and tosafeguard the smooth functioning of thecredit system by laying down rules for theestablishment and the operation of the credit

institutions as well as for the supervision ofthe latter . This law also introduces theprovisions of the Second Banking Directiveof the EU.

Moreover, this law contains an importantchapter pertaining to netting between creditinstitutions. The law seeks to guarantee thelegal certainty of set-off agreements fordebts between two or more creditinstitutions, where one of these institutions isinvolved in bankruptcy or in any other caseof concurrent claims which is governed byBelgian law.

Until recently, the effectiveness of nettingarrangements could be challenged underBelgian law, with regard to two principles ofbankruptcy law: a) the prohibition of any set-off after bankruptcy, except between relateddebts, and b) the principle that the bankruptcydecision of the court has a retroactive effect,starting from the first hour of the day on

which it was made (zero-hour rule).

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1.2 Financial intermediaries thatprovide payment services

Distinctions in the legal and supervisoryframework between commercial banks,savings banks and public credit institutionshave disappeared completely since the newlaw on the status and supervision of creditinstitutions came into force. With theexception of two, which have remainedsavings banks, they all have chosen to adoptthe denomination of bank. Furthermore,most of the former public credit institutionsare engaged in a privatisation process by

selling the public participation to the privatesector. The number of credit institutions inDecember 1994, subdivided into Belgian andforeign institutions, is given in the followingtable:

Total Under Under foreign law

number Belgian law

of credit

institutions EU non-EU

147 107 25 15

To these should be added the Post which,as the financial department of the PostalAdministration, does not have the status ofcredit institution. The Post has recently alsobeen allowed to offer credit cards linked tocustomers current accounts. In addition, ithas signed an agreement with the largestBelgian private bank related to the marketingof savings products through its branchnetwork.

The credit institutions and the Post arerepresented by 9,595 branches, i.e. onebranch for every 1,054 inhabitants.

Non-bank institutions are also representedin the payment media market , inparticular companies issuing in-house cards,luncheon vouchers and travellers cheques(see Sections 2.2.4 and 2.2.6).

1.3 The role of the central bank

1.3.1 General responsibilities

As the issuing authority, the NBB issuesbanknotes on its own behalf and coin onbehalf of the Treasury.1While the productionof banknotes takes place in its own printingdepartment, the minting of coin is theprerogative of the Royal Mint of Belgium,responsible to the Ministry of Finance.

Banknote distribution is carried out at theNBBs head office in Brussels, as well as at

three branches (of which one is inLuxembourg) and fifteen agencies.

Monetary pol icy is determined andimplemented by the NBB. It also managesthe nat ional gold and foreign exchangereserves. As lender of last resort, the centralbank grants credit to credit institutions only.As an agent for the Government, the NBBalso handles the receipts and expenses forthe Treasury, as well as the administration

and accounting of government bonds. It doesnot carry out retail activities on behalf of itscustomers.

Finally, the NBB is greatly involved in theinterbank clearing mechanisms with thetraditional clearing house (located in Brusselsand at seventeen branches and agencies ofthe central bank), the automated clearinghouse (CEC) as well as the dematerialisedSecurities Clearing System. It will also play aleading role in the development andmanagement of the new ELLIPS systemdedicated to the processing of large-valuepayments. It assumes general responsibilityfor the smooth functioning of paymentsystems and oversees the operation of thesesystems. It also plays a role in setting standardsfor the financial system.

1 Within the framework of the Belgian-LuxembourgEconomic Union (BLEU), Belgian coins and bank-notes are legal tender in the Grand Duchy ofLuxembourg, but the reverse is not the case.

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Statutory responsibility

The NBB is governed by an organic lawand by its statutes.

The main reference to the role of the NBBin the field of payment systems is made inArticle 30 bis of the organic law, which citesthe promotion of the smooth operation ofpayment systems as one of its tasks. Thefollowing paragraphs of the statutes are alsorelevant to the payment and settlementservices offered by the Bank:

Article 17, 2 allows the central bank tomake current account advances and short-term loans, guaranteed by the pledging ofcommercial bills or loan instruments listedon a stock exchange or traded in moneyor capital markets;

Article 17, 3 allows the central bank toreceive deposits of sums and establishsuch deposits with credit institutions andthe Rediscount and Guarantee Institute; 2

Article 18, 1st paragraph: the Bank maycarry out all transactions and render allservices which are ancillary to or followfrom its functions;

Article 31: the Bank may carry out alloperations designed to facilitate transfersof funds.

Establishment of common rules

Since the beginning of the 1970s Belgiancredit institutions have concluded various co-operative agreements in the field ofinformation processing in order to facilitateinterbank transactions. The NBB performsthe administration of the Secretariat ofProtocols. It is also actively involved inpreparing and writing the agreements. Thefirst so-called interbank protocol, signed on

8th July 1970, relates to credit institutionidentification by establishing a uniform structure

for account numbers, according to which thefirst three positions identify the institution.

Thirteen other agreements concerning, interalia, the standardisation of the most commonlyused payment instruments (i.e. credit transfers,cheques and direct debits) and the setting-up of an automated clearing house havesince been signed.

Supervision and audit

The NBB is not in charge of bankingsupervision. The supervision of individualcredit institutions is undertaken by a legallyautonomous institution: the Banking andFinance Commission (BFC). One Directorof the NBB has a seat on the Board of theBFC as of right. The NBB collects theperiodic and annual prudential reports fromthe credit institutions and transmits them tothe BFC. The BFC must consult the NBB

before publishing regulations concerningsolvency and liquidity.

The NBB oversees the Belgian paymentsystem on the basis of Article 19 of itsorganic law, which stipulates that: The Bankmay carry out all operations designed tofacilitate transfers of funds. This is one of thebasic missions for which the NBB isindependent from the Government, accordingto Article 30 bis, which has been added tothe organic law in enforcement of Art icle107 of the Maastricht Treaty.

All the credit institutions are supervised bythe BFC, except for the Post, which is underthe supervision of the Minister of Finance.

The internal audit department of the NBBis concerned with the various clearingsystems (Clearing House of Belgium, CECand Securities Clearing System) to theextent that the NBB is de facto responsible

for the operational organisation of thesesystems.

2 The Rediscount and Guarantee Institute is a semi-official market-maker in discount bills.

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1.3.2 Provision of processing and settlement

facilities

Provision of processing facilities

The NBB has historically been in charge ofthe paper-based Clearing House of Belgium,created at its own initiative at the beginningof the century. Considering the experiencegained by the NBB in this area as well as itsneutral role, the financial sector decided toentrust the NBB with the day-to-daymanagement of the CEC from the start ofthe system in 1974.

The Clearing House of Belgium and the CECare located on the premises of the NBB.They are operated on the Banks computersystem by the Banks own personnel.

Provision of settlement and credit facilities

The NBB provides settlement accountswith an overdraft facility for all members of

the Clearing House of Belgium. End-of-daycredit facilities are offered to the clearingbanks against collateral. There is no systemfor explicit intraday credit.

Netted cash positions resulting from thetransactions at the Securities Clear ing Houseare settled via the Clearing House of Belgiumfor inst i tut ions part ic ipat ing in bothmechanisms. For the other participants in theSecurities Clearing System and for themembers of the Stock Exchange and the CIK,the NBB provides sight accounts in which thecash leg of various kinds of securitiestransactions is settled .

Although the legal framework exists, creditinstitutions in Belgium are not at presentsubject to monetary reserve requirements;practically no balances are kept on theiraccounts at the central bank.

Pricing policies

The level of charges set by the Bank for theservices it offers tends to be based on theireffective cost.

1.3.3 Monetary policy and payment systems

The primary objective of the NBBsmonetary policy is price stability. The interestrate policy is guided by an exchange ratetarget which consists in keeping the Belgianfranc firmly pegged to the Deutsche Mark.

This intermediate objective, which was givenexplicit shape in June 1990, is justified by thehigh degree of openness of the Belgianeconomy, its sensitivity to exchange ratemovements, its close integration with theneighbouring countries economies and bythe credibility of the Bundesbanks stabili ty-oriented monetary policy. Its achievement issupported by low inflation, a sizable currentaccount surplus and a process of fiscalconsolidation.

The interest rate policy mainly consists oftwo elements: fixing the off icia l rates andpursuing a liquidity policy.

On the one hand, by announcing its rates,the Bank clearl y indicates the desi redmovement of short-term interest rates. Thediscount rate and the rate for collateralisedcurrent account advances above the ceiling(i.e. in excess of the credit line) thus have asignalling function (see Section below).However, the Bank shows the orientation ofits interest rate policy mainly through theconditions applicable to the end-of-dayfacilities, particularly the so-called centralrate. This also applies to the periodicalallocations of credit by tender.

On the other hand, the Bank can alsoinfluence money market rates by means of itsliquidity management. In the absence of anyreserve requirement system, it intervenes in

the money market on a daily basis, coveringthe need for liquidity result ing from the

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demand for banknotes and from its operationsin the foreign exchange market. This is

carried out in such a way that the NBBobtains the desired level of overall end-of-day deficit or surplus.

In order to fine tune market liquidity, theBank can use repurchase agreements, outrightopen market operations, foreign currencyswaps and classic interbank operations on adaily basis. All the monetary policy operationsperformed with the credit institutions aresettled through the Clearing House ofBelgium, in which the NBB participates.

The existence of a smoothly operatingsecurities system administered by the NationalBank is a necessary complement, enhancingthe effectiveness of the monetary policyinstruments.

The instruments for the regulation of moneymarket liquidity are supplemented byarrangements to cover deficits and depositsurpluses with which the credit institutions

may end the day. To cover their residualdeficits, Belgian and Luxembourg creditinstitutions can have recourse to the centralbanks current account advances, for whichthey have been granted generous individualcredit lines. Each institution can fix the usableamount of its available credit as it wishes, byproviding collateral. These daily end-of-dayloans take the form of current accountadvances, with interest payable on a dailybasis. The interest rates on these advancesare announced by the NBB and can beadjusted every day if necessary. Advancesabove the ceiling can be granted if sufficientcollateral is present, but at a much higherinterest rate.

Credit institutions can deposit any cashsurpluses they are left with after the close ofthe Clearing House with the Rediscount andGuarantee Institute (IRG-HWI), whichreinvests them with the NBB.

1.3.4 Main projects and policies being

implemented

The development of an RTGS system in Belgium

On 25th November 1994 the Board of theClearing House of Belgium endorsed plansfor the development of an RTGS system,ELLIPS (ELectronic Large-value InterbankPayment System), as well as for the gradualrunning-down of the paper-based clearinghouse.

The ELLIPS system will be developed and

implemented by the NBB; it will be ownedand managed by a non-profit-makingassociation chaired by the Bank andestablished on 8th December 1995. TheNBB will run the ELLIPS application on acontractual basis. This institutional frameworkis identical to the CEC, the automatedclearing house.

The operational start of ELLIPS is scheduledfor mid-1996 (see also Section 3.2).

1.4 The role of other private andpublic sector bodies

There are five main interbank organisationsoperating in the payment system field:

the Clearing House of Belgium (seeSection 3);

the CEC, founded in 1974 by the bankingsector as a whole, in order to automatethe exchange of payment transactions(see Section 3);

the Banking and Finance Commission(see Section 1.3.1 - Supervision and audit);

Banksys, a company which runs, inter alia,the national ATMs and POS network(see Section 2.2.4);

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the Bank Card Company (BCC), whichis entrusted with the administration of

two of the main credit card schemes(see Section 2.2.4).

Furthermore, the Belgian Bankers Association(Association Belge des Banques / Belg ischeVereniging der Banken), a professional

organisation, aims to promote its membersprofessional interests, mainly through economic

studies and fiscal, legal and technical advice.The Association of Belgian Savings Banks(Groupement Belge des Banques dEpargne /Belgische Spaarbankenvereniging) merged withthe Belgian Bankers Association at the endof 1994.

2. Payment media used by non-banks

2.1 Cash payments

Cash comprises banknotes in denominationsof BEF 100, 500, 1,000, 2,000,3 and 10,000and coins in denominations of BEF 0.50, 1, 5,20, 50, 250 and 500. 1994 was marked bythe withdrawal from circulation of the BEF5,000 banknote, which ceased being legaltender on 1st December 1994, and by theissue of the new BEF 2,000 banknote. Among

the notes, the BEF 10,000 denominationrepresents the largest share of the total stockof banknotes in circulation (44% by value atend-1994), despite the growing success ofATMs, which now deliver banknotes ofBEF 1,000 (accounting for 23% of the valueof notes in circulation on 31st December1994) and BEF 2,000 (accounting for 24% ofthe value of notes in circulation on 31stDecember 1994). Banknotes constitute 96%of total cash in circulation and coin theremaining 4%. The issue of coin is legallyrestricted to BEF 20 billion (ECU 0.50 billion).Coins are legal tender only up to a certainamount, which varies for each denomination.

It is impossible to estimate the value ornumber of payments made using cash. Theonly indication available lies in the share ofcash in M1, which has recorded a markeddecline over a number of years. It amountedto 29.4% at end-1994, compared with 43.7%at end-1980. The total stock of cash in

circulation on 31st December 1994 amountedto BEF 431.4 billion (ECU 10.9 bill ion).

2.2 Non-cash payments

Deposit money comprises sight depositsheld by non-financial economic agents withfinancial intermediaries legally entitled toreceive such deposits (credit institutions andthe Post).

There is no statutory definition of currentaccounts. According to the regulation4

governing the financial data which the bankshave to submit monthly to the central bankand to the Banking and Finance Commission,current accounts are those on whichdeposited money can be immediatelywithdrawn.

Royal Decree No. 56 of 10th November1967 obliges businesses to hold an accountto which credit transfers can be made bytheir customers. These are general ly currentaccounts.

Regarding value dates, the usual practice inrespect of ordinary customers is thataccounts are debited one working day beforethe sett lement date and credited oneworking day after. In the case of cheques inthe process of being collected, the credit istemporari ly revocable.

3 Banknotes of BEF 2,000 were first issued on 22nd

April 1994.4 Royal Decree of 24th November 1937.

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There are no formal regulations governingthese practices. Maximum time limits for

crediting counterparties are not statutory.Credit institutions must execute paymentorders promptly, on the basis of the generallaw of contract.

The principle of allowing providers of paymentservices to charge current account holdersfor such services was adopted in 1990,enabling credit institutions to charge a fixedfee of BEF 150 (ECU 3.8) for the forty-ninefirst transactions, and a maximum of BEF 5(ECU 0.13)per additional debit operation.

Deposit money is rather heavily concentrated:the seven largest credit institutions accountfor 70% of deposits by value.

2.2.1 Credit transfers

The most commonly used payment mediumin Belgium is the credit transfer. The order isgiven by the customer making the payment

to his/her bank either in paper form -handed in at his/her bank branch or sent bypost - or in automated form (diskette,magnetic tape, telecommunications). Anestimated 642.7 million credit transfers(including standing orders and inpaymenttransfers; see below and Section 2.2.5) weremade in 1994, for a total value of BEF 73,984billion (ECU 2,285 billion).

The standing order is a form of credittransfer created in order to rat ionalise thesystem for recurring payments (payment ofrent, etc.). An estimated total of 61.63 millionpayments of this type were made in 1994 fora total value of BEF 777.12 billion (ECU19.59 billion).

One significant development is the growingdemater ia l i sat ion of payment orderstransmitted by customers in paral lel with thespreading of new self-banking and homebanking products. More and more firms are

communicating their payment orders viamagnetic media or telecommunications, which

obviates the need to capture the data withinthe financial system. For 1994 it is estimated

that 187.9 mil lion payment orders - 29% ofall credit transfers - were submitted inpaperless form.

2.2.2 Cheques

Up to 1992, the cheque was the secondmost frequently used cashless paymentinstrument after the credit transfer. In recentyears, however, its use has been diminishingand since 1993, payments by debit and credit

cards have become more important in termsof volume than payments by cheque.

By supplying creditworthy customers withcheque guarantee cards, credit institutionspromoted the acceptability of the cheque tocreditors. These cards serve as a guaranteethat any cheque drawn wil l be honoured upto an amount of BEF 7,000 (ECU 176.5),whether or not the drawers current accounthas sufficient cover. To make the guarantee

effective, the number of the cheque guaranteecard must be written on the reverse of thecheque. It is the duty of the payee to checkthe validity of the card and to see whetherthe information on the card correspondswith that written on the cheque. The chequeguarantee card generally carries an automaticoverdraft facility of BEF 25,000 (ECU 630)orBEF 50,000 (ECU 1,260) on which interest ischarged. The only restriction is that apermanent debit balance for more thanthree consecutive months is not allowed. On31st December 1994 there were 4.66 millioncheque guarantee cards in circulation(3.43 million of which were eurochequecards), equivalent to a theoretical average ofth ir ty-e ight cards for every onehundred current accounts. In 1994, 124.1million cheques were issued for a total valueof BEF 13,693 billion (ECU 345.26 billion).

In addition to cheques issued by individualcredit institutions and postal cheques, the

eurocheque is commonly used within Belgium.Unlike other cashless payment instruments,

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the cheque can be used for several successivepayments, by means of endorsement.

However, this practice is limited.

2.2.3 Direct debits

The direct debit is a mechanism created in1980. Its purpose, like that of the standingorder, is to simplify the execution of regularpayments. In 1994 it was estimated that100.1 million payments were executed underdirect debit agreements. Direct debits aremainly used for electricity and telephone bills

and for subscriptions.

The direct debit is based on a contract inwhich the payer authorises the payee todebit his/her account for specified claims. Allsignatories of the contract (payer, payee,debtor and banker of the payer) may repealit. The revocation comes into effect at thelatest ten days after the payers banker hasbeen informed.

2.2.4 Payment cards

Debit cards

Debit cards, issued by the credit institutionsunder their own logo associated with thelogos of Bancontact and Mister Cash5, can beused at ATM and POS terminals. The debitand cheque guarantee card functions arepacked on the same support. All debit cardshave magnetic stripes and require the use ofa personal identification number (PIN) beforethe services can be accessed.

A company called Banksys (see below) isentrusted with the management of theATM-POS network. Its duties include themonitoring of bank-issued cards and the PINmailer production for all bank cards. ThePost has developed its own debit cardscheme, called Postomat. Furthermore,several credit institutions offer ATM facilities

to their own customers within the frameworkof self-banking units. Banksys participates

directly in the automated clearing house (seeSection 3.4) and exchanges all the ATM and

POS operations to be cleared in this system.

On 31st December 1994 there were some6.8 million debit cards in circulation, all ofwhich provided access to both ATM andPOS terminals, thus representing a ratio offifty-six cards to every one hundred currentaccounts.

The cost to the consumer of using debitcards at ATM and POS terminals in theoryconsists only of an average annual fee ranging

from BEF 165 (ECU 4.16) to BEF 250 (ECU6.3). However, most retail outlets chargeBEF 5 (ECU 0.13)6for each POS transaction,the fee imposed on them by the interbanknetwork.

In the last few years, the use of debit cardshas gradually become internationalised. Atthe ATM level, there is a reciprocal agreementbetween the Post and its counterpartorganisations abroad.7Within the framework

of the Europay community, holders of Banksyscards also have access to ATMs in anincreasing number of European countries,with reciprocity for foreign eurocheque cardholders. Similar interconnections have beenestablished on a bilateral basis betweenBanksys and other foreign networks.

Credit cards

In Belgium, most credit cards tend to be ofthe travel and entertainment type, the fullamount having to be settled within a specifiedperiod.

Credit cards (American Express, DinersClub, Eurocard and VISA) are widely

5 Bancontact and Mister Cash are the two formerATM-POS networks that merged in 1987 to formBanksys. The Post also issues its own debit cardsfeaturing the Postomat logo.

6 This does not apply to Postomat.7 In France, Luxembourg and Spain.

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accepted in Belgium. As a result of vigorouspromotional efforts by the companies

concerned, the number of cards incirculation has shown a considerableincrease in recent years: from some 326,000at end-1985 to around 2,132,000 at end-1994. In 1994 28.20 million transactionswere effected in Belgium for a total of BEF111.80 billion (ECU 2.8 billion), 8.20 millionof which were payments effected usingforeign cards, for a total of BEF 31.25 billion(ECU 787.9 million).

BCC, in which the credit institutions are the

shareholders, accounts for the distributionand processing of the majority of VISA andEurocard cards. Banksys is entrusted with theauthorisation of transactions executed usingthose cards on behalf of BCC.

Card issuers have recently begun automatingtheir payment procedures. At some points ofsale, authorisation takes place electronicallyonline and details of the transaction areimmediately recorded by the issuing

companys computer system and a slipevidencing the transaction is printed out. Thenationwide ATM network can also beaccessed using credit cards (except for DinersClub cards).

Fixed liability tariffs for the loss of a creditcard are laid down in the law.8

Retailer cards

Retailer cards issued by petrol companiesand large retailers can, by their nature, onlybe used at points of sale controlled by theirissuers. A distinction can be made betweenin-house cards meant for the issuers owninfrastructure and those which are in factmanaged at the operational level by another

commercial card issuer (interbank networkor credit card issuer). The latter category

comprises cards issued by petrol companies.Moreover, some of these retailer cards arelinked with POS terminals, whereas otherscan only be used manually. One of the best-known cards, issued by a large retailer, canbe used either as a debit card (in which casea direct debit of the customers bank accountis initiated by the retailer) or as a credit card,the choice being made by the cardholder atthe moment of purchase.

1,089,000cardswere in circulation on 31stDecember 1994; 16.81 million transactionswere recorded for a value of BEF 33.60 billion(ECU 847 million); 96.4% of the total volumeand 94.9% of the value of payments withretailer cards were made electronically.

Prepaid cards

Prepaid cards were launched in Belgium in1979 with the RTT-Telecard (now called

Belgacom-Telecard), which enables nationaland international telephone calls to be madefrom payphones. Other service providers,such as city transport companies, make useof similar cards, albeit on a smaller scale. Allthese cards are of the magnetic str ipe-typeand single-purpose oriented.

The first multi-purpose electronic purse, calledProton, was piloted in two cities at thebeginning of 1995 (see Section 2.3.1).

ATMs and POS networks

Banksys manages ATM and POS terminalsonline on behalf of the issuing creditinstitutions that are the only shareholders inthe company. These terminals are accessibleby means of magnetic stripe cards and secretPIN codes. In addition, there are two ATMsowned by American Express and in-houseATM networks owned by several credit

institutions and the Post. The latter alsoprocesses the POS transactions made by its

8 Royal Decree of 24th February 1992, based onthe Law on Consumer Credit of 12th June 1991,

was published in the Belgian Law Gazette of 4thApri l 1992.

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Postomat customers.

Transactions possible at Banksys ATMs arecash withdrawals, the checking of balanceson current accounts and the modification ofPIN codes. Each transaction triggers variousimmediate checks:

blacklist (stolen cards, etc.);

balance on current account, on the basisof the balance at the previous days close,taking into account the total of the daysoperations effected by means of the card

and the amount of the daily and weeklytransactions caps.

This online authorisation procedure virtuallyeliminates fraud and unauthorised overdrafts.

By 31st December 1994, 1,246 ATMs and63,765 POSterminals had been installed,mainly by the Banksys network. Only fourteenATMs had been installed at non-bank sites.This number will continue to fall due to a

policy to discourage the installation of ATMsat non-bank sites. Additionally, 1,924 ATMswere installed in self-banking units at thebranches of twelve credit institutions. TheseATMs allow other types of transactions suchas the ordering of documents (cheques orcredit transfer forms) and transfers fromcurrent accounts to savings accounts.

Whereas the POS terminals installed at fillingstations and large retail outlets are, likeATMs, heavyweight terminals linked via leasedlines to the networks computer centres,those instal led at small retail outlets and inthe other sectors involve the use of theswitched telephone network (STN).

The interbank network can be accessed notonly using bank debit cards but also bymeans of a range of in-house cards issued bypetrol companies which can be usedexclusively at filling stations selling their brand.These companies make use of the

infrastructure of the interbank network, but

offer additional advantages such as discounts,the possibi lity of using the card abroad, etc.

These services are specifically aimed atattracting corporate customers with fleetsof vehicles.

2.2.5 Postal instruments

The inpayment transfer is a hybrid paymentinstrument offered chiefly by the Post, whichenables a payment to be made to a holder ofa (bank or postal) current account on thebasis of a cash inpayment at a post office.

This instrument is primarily intended forpayers who do not have a current account.In 1994, 35.8 million inpayment transferswere made for a tota l va lue ofBEF 659.5 billion (ECU 16.62 billion), givingan average of BEF 18,421 (ECU 464) pertransaction. There is now a real move todiscourage use of this instrument, whichrequires lengthy manual procedures, byapplying a high fee of BEF 16 (ECU 0.4) pertransaction.

The Post issues a special category of cheques,known as the postal draft. This is a paymentorder, sent by post, which the recipient cancash at a post office or at a credit institutionat which he/she is a customer. This paymentmedium enables a payment to be made to apayee who does not hold a current accountor whose current account number is notknown by the initiator of the transaction.The draft is drawn on a postal currentaccount, possibly with a financial institutionas intermediary. The government and itsvarious agencies make extensive use of thepostal draft system, for instance for thepayment of social security benefits (e.g.pensions, family allowances). In 199422.1 million postal drafts were issued for avalue of BEF 425.2 billion (ECU 10.72 billion).The Post has recently decided to promotethe use of circular cheques in order toreplace the postal drafts for all operationswith a value lower than BEF 100,000

(ECU 2,521).

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2.2.6 Other payment instruments

Other instruments are also used in Belgium,the main ones being:

the travel lers cheque;

the luncheon voucher;

the commercial bill.9

In 1994 200,000 travellers cheques weresold in Belgium for a value of BEF 5.27 billion(ECU 132.88 million).

Luncheon vouchers are issued by two French-owned companies (Le Chque-Repas andTicket Restaurant) to any firm wishing todistribute them to its employees as part oftheir remuneration package. Since 1st Apri l1994, their validity has been limited to threemonths and they may only be used for thepayment of a restaurant bill or for thepurchase of food products. Due to thesestrict limitations and the reduction of the tax

advantages accruing to the employer and theemployee under the system, use of thisinstrument has been falling over the past fewyears: 103.73million luncheon vouchers wereissued in 1994 (against 130 million in 1992)for a total value of BEF 19.07 billion (ECU 480million), against BEF 23.05 billion (ECU 581million) in 1992.

2.3 Recent developments

2.3.1 Proton

The first multi-purpose prepaid card, calledProton, was piloted by Banksys in two citiesin February 1995. This card is designed to be

a replacement for ready cash (and small-value cheques) and is targeted at payments

below BEF 500 (ECU 12.61) in local shops,vending machines, car parks, ticket machines,public transport and payphones. It can beloaded with amounts ranging from BEF 100(ECU 2.52) up to BEF 5,000 (ECU 126.07).Electronic purses are issued only by thecredit institutions, which charge an averageBEF 200 (ECU 5.04).

Proton is a microprocessor card which storesmonetary value as opposed to tokens orunits of service (as a phone card does). It can

be reloaded at cash dispensers (ATMs) usinga secret code. The loading transaction isprocessed with verification of this code andof the available funds on the account. Thepayments are made in Belgian francs. It istechnically poss ible , however, to extend thesystem to other currencies. Purse-to-pursetransactions are not possible within theProton scheme.

Within the scope of this project, Banksys is

developing and marketing two new types ofpayment terminal for the service providers:

a terminal for small shops, with twoversions, fixed and portable;

a module to be integrated into vendingmachines.

During a purchase transaction, money istransferred from the Proton card to theretailers terminal. As only small amounts areinvolved, and for reasons of speed and easeof operation, these payments are madewithout using a secret code. The serviceprovider can transfer the money into his/herbank account through a simple telephonecall from the terminal (using the modem) orthrough a special card which he/she thenunloads at an ATM or at his/her bank branch.The cardholder can consult the balance onhis/her Proton card at a cash dispenser, atthe terminal of the service provider or using

a small personal pocket device.

9 It could be argued that the commercial bill and itsvariants are not payment instruments as such,because settlement of the transaction underlyingthe bill has to be in the form of another paymentmedium (cash or deposit money). The commercial

bill can, however, be passed to a third party bymeans of endorsement.

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Nationwide expansion is planned for thebeginning of 1996 and is intended to cover

the whole country before the end of 1998.

Banksys is looking into the possibility ofwidening the range of loading possibilities (athome by telephone or at payphones).Another possible future development wouldbe to combine the functions of the debitcard and electronic purse on a single plasticcard and, consequently, to open the POSnetwork to the electronic purse.

The Proton technology has already been

adopted by several foreign countries includingAustralia (Quick Link) with a licence forHong Kong and New Zealand, theNether lands ( Interpay) , Swi tzer land(Telekurs) and, more recently, Brazil (Mitel).

2.3.2 Standardisation of payment instruments

Great efforts have been made in recentyears to standardise payment instruments

in order to facilitate their automatedprocessing. In this respect several workinggroups have been created by the Belgian

Bankers Association. The NBB collaboratesactively with these groups. The means of

payment for which a manual exchange inthe clearing house remains compulsory areprogressively being replaced by standardisedinstruments. One important example is theprogressive replacement of postal drafts foran amount below BEF 100,000 (ECU 2,521)by circular cheques. This evolution isregarded as a necessary step towards thefull automation of interbank exchanges.

2.3.3 Phone banking and self-banking

Phone banking is becoming increasinglysuccessful. In 1994, 8.1 million credit transferswere made by means of phone banking,compared with 5.5 million in 1993. Thenumber of subscribers to phone banking hasrisen to 1.4 million from 0.8 million in 1992.

In an attempt to reduce staff costs, severalbank branches are being equipped with self-banking units. In 1994, 1,989 branches were

already equipped with a self-banking unit, i.e.25% of all branches.

3. Interbank exchange and settlement systems

based system which handles 2% of allpayments to be cleared (but 93% of the totalvalue). It also incorporates the net balancesof the CEC and the Securities ClearingSystem, as well as the global amounts of theS.W.I.F.T.-CLR (clearing) system. The lattersystem calculates the bilateral global amountsto be settled at the Clearing House, whilethe individual payment instruct ions aretransmitted electronical ly, via the S.W.I.F.T.network.

The remaining 98% of interbank transactions

are handled by the CEC. These representonly 7% of the total value to be cleared.

3.1 General overview

There are two domestic interbank paymentsystems in Belgium: the Clearing House ofBelgium and the CEC.

Both systems process credit transfers withoutany restrictions regarding their value. Inpractice, however, most large-value transferspass through the Clearing House, while theCEC mainly processes retail payments.

The Clearing House of Belgium, which

operates from Brussels as well as fromseventeen other cities in Belgium, is a paper-

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The implementation of ELLIPS is expected in1996 and wi l l lead to a complete

reorganisation of the national interbank

payment system. Its new structure will be asfollows:

Chart 1

Interbank exchange and settlement systems in Belgium (current situation)

SecuritiesClearingSystem

Paper-basedexchange

S.W.I.F.T.-CLR

CECCentre for the Exchange

of Operations to be Cleared(ACH)

Clearing Houseof Belgium

(paper-based)

global amounts

end-of-daynet balances

Settlement accountswith overdraft facility

at the NBB

netbalances

netbalances

Chart 2

Interbank exchange and settlement systems in Belgium (1996)

PARTICIPANTS

payment orders

ELLIPSElectronic Large-value

InterbankPayment System (RTGS)

gross settlement

Settlement accountswith overdraft facility

at the NBB

S.W.I.F.T.-CLRglobal

amounts

Securities Clearing System

CEC (ACH)

Paper-based clearing

net balances

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seventy direct participants and seventy-oneindirect participants.

3.3.3 Types of transactions handled

In theory, all types of paper-based paymentinstruments can be handled in the ClearingHouse: cheques, credit transfers, commercialbills, redemptions of securities and couponpayments, and liabilities incurred in Belgianfrancs in respect of foreign exchangetransactions (see Section 4.1). The CECremains, however, the recommended method

for transmitting the operations that can beexchanged automatically.

3.3.4 Operation of the transfer system

The Clearing House of Belgium handlespaper-based transfer orders within the variousbranches of the Clearing House and betweenthe branches (by mail or courier service).Balances resulting from the CEC and from

the Securities Clearing System of the NBBare automatically added in the afternoon,after which time multilateral net balances arecalculated. Payments become final the sameday.

An overview of the cut-off times fortransactions presented at the Clearing Houseof Belgium is given below:

Operations Cut-off time

Paper-based securities

and coupons 9.00 a.m.

Cheques 11.45 a.m.

Credit transfers 1.00 p.m.

CEC balances (details below) 2.00 p.m.

Debits, rectifications 2.15 p.m.

Unpaid cheques, specific

credit transfers 2.30 p.m.

Operations outside Brussels

with the NBB 3.30 p.m.

Balances resulting from

securities clearing 4.00 p.m.

Final settlement 4.30 p.m.

Revocation of operations is not possible,unless this is bilaterally agreed. Participants

with a positive net final balance are able totransfer this balance to the Rediscount andGuarantee Institute (IRG-HWI), a semi-officialmarket-maker in discount bills. Those with anegative final net balance can borrow fromthe NBB on a ful ly col lateralised basis (seeSection 1.3.3).

3.3.5 Transaction processing environment

Paper-based payment documents are

physically exchanged while the relatedfinancial data are announced on terminals,either in the Clearing House or in the headoffices of member banks. Operations areconfirmed electronically by the addresseeafter having received the payment documents.The net balances of the peripheral systems(CEC and Securities Clearing System) areautomatically booked with the participants,who can consult their treasury position online.The NBB acts as manager and supervisor of

the system.

3.3.6 Settlement procedures

The NBB is the only settlement agent. For allclearing mechanisms, finality occurs at the endof the day, when the participants multilateralnetted positions are booked on their settlementaccounts at the NBB. Should a participant havea net debit position which exceeds its creditfacility with the NBB, and should it also beunable to borrow from other credit institutions,all its payments would have to be unwound(see Section 1.3.3).

3.3.7 Credit and liquidity risk

Each participant10 has a settlement accountat the NBB. Overnight credit extended by

10 With the exception of the Post, the net balance of

which is incorporated in the accounts of the StatesCashier.

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the NBB has to be ful ly covered by col lateral .

There are no intraday arrangements orintraday controls on net debit positions.Loss-sharing rules do not exist. The unwindingof all the operations of a defaulting bank isthe ultimate solution in the event of ser iousproblems at the end of the day. This has nothappened since the Clearing House wasfounded at the beginning of the century.Nevertheless, growing awareness of credit,liquidity and systemic risks has led the NBBto develop ELLIPS (see Section 3.2.1).

3.3.8 Pricing

The cost of the Clearing House of Belgiumis partially borne by the NBB. Somecategories of costs (computer applicationand courier service), however, are recoupedfrom the participants. There are notransaction fees.

3.3.9 Main projects and policies beingimplemented

Achievement of the complete automationof interbank exchanges implies that the fewthousand transactions which continue to bedealt with by the Clearing House on a dailybasis will have to be eliminated. Severalinitiatives have already been taken tointroduce new types of operation in the CECand to replace the payment instrumentsregarded as obsolete by more modern ones.The dematerialisation of the exchange ofcheques exceeding the limit allowed forcheque truncation in the CEC will probablybe one of the main obstacles to theelimination of all manual procedures.

The current functioning rules of the ClearingHouse will be greatly modified after thelaunch of the ELLIPS system. The fewremaining paper-based operations (mostlylarge-value cheques and postal drafts) will be

exchanged via mailboxes installed on thepremises of the NBB without the compulsory

presence of the cred i t inst i tut ions representatives. The total value of these

operations will be marginal compared to thatof the ELLIPS transactions.

3.4 Retail payment system: CEC

3.4.1 Functioning rules

The CEC is a non-profit-making organisation.As in the case of the Clearing House ofBelgium, the Board of Directors, made up ofrepresentatives of the members, takes most

of the decisions on new rules.

The NBB acts as Chairman of the Board andoperational manager of the system.

3.4.2 Participation in the system

The statutory criteria for participation inthe CEC are very similar to those appl iedto the Clearing House. All credit inst itutions

legally entitled to operate in Belgium canmake use of the services of the CEC eitherdirectly, as members, or through anotherparticipant. On 31st December 1994, theCEC comprised eighty-three members andfifty-eight sub-members. All the institutionsoperating in the Clearing House also haveto be registered in the CEC.

3.4.3 Types of transactions handled

The CEC is mainly used for exchangingdata on retail payments: the average amountper operation is BEF 30,000 (ECU 756).The system is used to process sixteendifferent main types of operation. The maincategories include credit transfers, truncatedcheques for up to BEF 300,000 (ECU7,564), unpaid cheques, direct debits, unpaiddirect debits and ATM/POS transactions(see Tables 8 and 9 in the statistical annex).The la t ter category represented

approximately one-third of the total numberof operations in 1994.

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The ten largest participants provided almost93% of the total number of transactions

processed in the system.

3.4.4 Operation of the transfer system

The CEC transfer system operates on around-the-clock basis, five days a week. Theremitting institution generates blocks ofmessages to be sent under differentapplication codes, according to their type.Data are transferred to the CEC viate lecommunicat ion, tapes, casset tes or

diskettes. There is no exchange of paperpayment documents (including cheques), asthese are reta ined (t runcated) by theinstitution which receives them from thecustomer. Following certain checks, themessages are sorted by addressee and sentthrough the selected transmission medium.The participants may inquire about theirtreasury position via telecommunicationthroughout the day . Par ticipants cannotrevoke their operations.

Operations Cut-off time for settlement

on day D

Teleprocessing Others

users

Direct debits and D: 8.00 a.m. D-1:10.00 p.m.

unpaid cheques

Credit transfers D: 12.30 p.m. D: 1.00 a.m.

Large-value D: 1.30 p.m. not allowed

or urgent

credit transfers

Cheques and un- D: 1.45 p.m. D: 1.00 p.m.

paid direct debits

The settlement of the data exchanged beyondthe deadlines takes place on the next valuedate. The net balances of the CEC areregularly incorporated in the treasury positionof the participants in the Clearing House.

3.4.5 Transaction processing environment

Data exchange between the CEC and itsmembers takes place via magnetic media or

by telecommunication, in the latter case withcompulsory encryption of the data; 74% of

input data and 79% of output data arecurrently handled via teleprocessing. TheCEC operates with a very high degree ofreliability, up to 99.99%. Immediate backupfacilities exist both within the NBB as well asat an external backup centre provided by acomputer firm.

3.4.6 Settlement procedures

The amounts to be cleared as a result of

the exchanges are calculated for each ofthe clearing banks and added to the irtreasury position in the Clearing House. Allexchanged operations are settled on thesame day, provided that they have beenremitted before the cut-off time.

3.4.7 Credit and liquidity risk

The rules of the Clearing House regarding

credit and liquidity risk also apply to the CEC(see Section 3.3.7)

3.4.8 Pricing

The cost of the CEC system is sharedbetween its members on the basis oftransaction volumes and the means ofexchange used, so that the NBBs costs arefully covered. The direct members also haveto pay an annual fee. In addition to thesesystem costs, an interbank pricing systemexists according to which every receivingbank pays a certain sum to compensate forthe remitters data exchange cost .

3.4.9 Main projects and policies being

implemented

In the future, the CEC will also be used toexchange data other than payment

instructions. The first project relates to theautomation of the direct debit contracts

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between customers and their suppliers.Another project, which will start in 1996,

aims to automate all transactions with regardto bill s of exchange. It will link the IRG-HWIand the CEC. The circulation of bills will beentirely eliminated and data will be exchangedelectronically. However, contrary to theprocessing principles for cheques in the CEC,bills will not be kept with the initiator, butwill instead be sent to the IRG-HWI, which

will be responsible for the custody of thebills, the management of a central register

and the settlement of centralised payments.

Furthermore, the CEC will specialise in theprocessing of all retail transactions, includingthose which are sti ll exchanged in themanual Clearing House. Active participationin this system wil l be promoted byappropriate pricing measures.

4. Securities settlement systems

4.1 Institutional aspects

4.1.1 General legal aspects

Legal framework concerning financial(securities) markets

Debt instruments can take three different

forms under Belgian law: (1) dematerialisedform, where securities are exclusivelyrepresented by book entries, (2) bearerform, and (3) as a registration in the ledger ofthe issuer. Since 1991, various legislation hasbeen adopted to define the features of theseinstruments, as well as to organise the systemsin which transactions in these securities aresettled.

Articles 3 to 12 bis (and the subsequentamendments thereof) of the Law of 2ndJanuary 1991 related to public securities andthe instruments of monetary policy establishedthe dematerialised form of the public debt aswell as the clearing system administered bythe NBB. These are inspired by the generalphilosophy of Royal Decree No. 62 of 10thNovember 1967, which defined the rulesapplicable to fungible securities under Belgianlaw.

Securities in bearer form can be deposited

with a central institution, the CIK (an acronymfor the Caisse Interprofessionnelle de Dpts

et de Virements de Titres SA / InterprofessioneleEffectendeposito- en GiroKas N.V.), and tradedby simple book entries on or from theaccounts of the affiliates held in the books ofthe CIK.

Originally created for the settlement oftransactions on instruments of the public

debt, the scope of the Securities ClearingSystem of the NBB was widened to includethe sett lement of some dematerial isedprivate debt instruments by the Law of22nd July 1991, and to include other typesof debt instruments as a result of the newfiscal measures introduced by the Law of6th August 1993.

Legal measures have been taken in orderto protect the investors interests , particularlyagainst the default of the holder of adematerialised securities account, e.g. thesegregation of assets, a ban on any attachmentproceedings on accounts opened in thename of agreed holders, and the recognitionof the owners right of claim, that can beexercised on the depositorys own assets inthe event of insuff icient cover on the globalcustomers account.

Securities can be pledged by being bookedon special pledge accounts, without the need

for other formalities.

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Repurchase agreements on dematerialisedsecurities follow the rules laid down in the

above-mentioned Law of 2nd January 1991,and can be concluded by f inancia lintermediaries on the basis of the PSA/ISMAMaster Agreement, as amended to complywith the specific features of Belgian legislationand market practices. Furthermore, bridgesare established with international securitiessettlement systems (Cedel and Euroclear) toenable simple transfers of securities betweenaccounts held by investors in different systems.

The Law of 6th August 1993, related to

transactions on certain securities, introducesa new fiscal regime for fixed-income securitiesdeposited in a settlement system; it alsoplaces responsibility for the collection andpayment to the Treasury of the withholdingtax due from certain benef iciar ies of securitiesincome because of coupon payments or ofsecondary market transactions with themanagers of these settlement systems.

The Law of 7th April 1995 authorised the

complete dematerialisation of securitiessubmitted to the Royal Decree No. 62(fungible assets not included in the scope ofthe Law of 2nd January 1991) and to theCode of Commerce (others), following rulessimilar to those determined by the Law of2nd January 1991 and its subsequentamendments.

4.1.2 The role of the central bank

General responsibilities

Statutory responsibilities

The organic law of the NBB does not assignany special role to the bank in the field ofsecurities settlement systems. However, sucha task is laid down by the Laws of 2ndJanuary and 22nd July 1991, under whichthe NBB is entrusted with the managementof the Clearing System for dematerialised

public debt securities and some dematerialisedprivate debt instruments.

Establishment of common rules

The NBB supports the financial sector inthe el abora ti on of the sta tu to ry andcontractual regime applicable to securities,especially that for public debt securities.

The NBB is entrusted with the day-to-daymanagement of the Securities RegulationFund (Fonds des Rentes / Rentenfonds) whichestablishes the common transaction rulesapplicable to dematerialised public debtsecurities.

Moreover, the NBB retains the original ofeach Repurchase Agreement executed(unilaterally) by each participant in the Belgianrepo market, and periodically updates a listof such signatories which is then distributedto all the signatories.

Oversight and audit

Neither the oversight nor the audit ofsecurities settlement systems operating in

Belgium is explicitly assigned to the NBBexcept, of course, for the Securities ClearingSystem which it operates itself. The SecuritiesRegulation Fund is, however, responsible forthe supervis ion of the holding of the accountsof dematerialised public debt.

Provision of settlement facilities

Securities accounts

Each participant in the Securities ClearingSystem of the NBB has a securities accountsub-divided into sub-accounts to distinguishin particular the securities held on its ownaccount, those held on behalf of third parties(customers) and those securities that arepledged. A participant may not hold asecurities account (dematerialised securities)with another participant in the system (exceptfor pledging or for non-BEF and non-ECUinstruments).

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Securities lending

The Securities Clearing System of the NBBprovides an automatic bond lending facilitydesigned to facilitate the final settlement ofmarket transactions.

At the end of each business day, the Systemdetermines the balance of each participantfor all kinds of securities. Participants whohave a debit balance on their own securitiesaccount can borrow the necessary securitiesfrom a pool provided by the participantswho are ready to lend the securities remaining

on their own portfolio account or on that oftheir customers (the consent of whom isnecessary).

Automatic borrowings are to be repaid thenext banking day. Nevertheless, it is possibleto prolong the borrowing of the samesecurities on a daily basis over a maximumperiod of ten days. This takes placeautomatically and is completely anonymous.

Such borrowings are only provided if thefollowing conditions are fulfilled:

conclusion of a specific agreement withthe NBB, as the manager of the Secur itiesClearing System, in order for theparticipant to join the consortium oflenders and consequently have the rightto borrow himself ;

assignment of the percentages theparticipant will allow the system toconsider when taking securities out of itsown portfolio in order to place them atdisposal of the pool of lenders;

the borrowing capacity of the part icipantdepends on the pledge available, which iseither formed beforehand or calculatedautomatically by the system (the pledgein market value must be equal to at least110% of the market value of the borrowedsecurities).

Provision of operational facilities

Central securities depository

The NBBs Securities Clearing Systemeffectively plays the role of central depository,not only for dematerialised public debt, butalso for dematerialised commercial paperand for some bearer securities.

Clearing House

To date, clearing has taken place on amultilateral net basis at the end of the

business day. However, it should beemphasised that the Securities ClearingSystem does not intervene as a counterpartyin the settled transactions. Settlement of thecash leg is effected through the ClearingHouse of Belgium or via current accounts atthe NBB (see above).

Monetary policy operations and securitiessettlement systems

See Section 1.3.3.

4.1.3 The role of other public sector bodies

The Stock Exchange

The Socit de la Bourse de Valeurs Mobilires /Effectenbeursvennootschap organises andsurveys the stock exchange markets.

The over-the-counter market of Belgiangovernment securities has been placed underthe supervision of the Securities RegulationFund (Fonds des Rentes / Rentenfonds).

Transactions in equities and transactions insome public sector bonds are cleared andsettled through an arrangement in whichthree inst itutions intervene:

the CL-CV (Cooprative de Liquidation /

Coperatieve tot Vereffening), a companyset up for the purpose of settling

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tr ansact ions in the stock exchangemarket, ensures reciprocity of the

transfers of securit ies and funds; it carr iesout a multilateral netting of securitiesand cash for the forward market, and amultilateral netting of funds for the cashmarket;

securities are transferred by movementson the securities accounts of CIK, thecentral depository for fungible bearersecurities;

funds are transferred by movements on

the accounts of the NBB.

4.2 Summary information onsecurities markets

4.2.1 Main features of different securities

markets

Belgian capital markets have expandedconsiderably with the encouragement of the

authorities. Since 1989, new dematerialisedinstruments have been created, while a newclearing system has been launched by thecentral bank.

There is now a broad range of instruments inuse:

dematerialised securities (linear bonds,Treasury bills, and commercial paper):the vast major ity of trades involving thesetypes of securities are over-the-countertransactions. The NBB is the centraldepository body for these securities andmanages the Securities Clearing System.New standard government securities (inpaper form) have also been handled bythe system since December 1994;

other securities (in paper form), includingstandard government securities, bondsand equities issued by private bodies:the central depository for securities in

paper form is the CIK;

futures and options transactions aremanaged by Belfox (Belgium Futures

and Options Exchange).

4.2.2 Basic quantitative aspects (basic

statistics)

Secondary market: nominal amounts

ECU billions

Years Treasury bills Linear bonds

1991 176.5 100.6

1992 244.4 216.0

1993 361.3 541.5

1994 447.0 1,220.8

Since the launch of the NBBs SecuritiesClearing System, the number and value oftransactions has grown rapidly (see CountryTable 11). The increase in the value oftransactions processed is part ly due to therise in the average value per transaction, butis also the result of the increase in repotransactions, especially during 1994.

It should be emphasised that the nominalamounts indicated for the secondary marketshould be considered as a minimum estimatesince transactions between customers of oneand the same participant are not recorded.These hidden transactions are probablysubstantial owing to the fact that, amongother things, its participants include the twolargest international clearing institutions,namely Euroclear and Cedel.

4.2.3 Financial intermediaries operating in the

different securities markets

Several kinds of institutions participate inthe different markets listed above: banksand savings banks, stockbroking firms,brokers (not participants in the NBBSecurities Clearing System), inter-primarydealer-brokers and international clearinginstitutions (Euroclear and Cedel).

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4.2.4 Recent developments

New fiscal environment based on twotypes of securities accounts (investorsexempt or not from witholding tax);known as X/N accounts (X = exempt; N= non-exempt);

new bridge with Euroclear and Cedel;

new repo convent ion (PSA/ISMAconvention adapted slightly to the Belgiancontext);

Belarfi project agreement (a single clearingstructure for all underlying instruments).This project is to be implemented in1996.

4.3 Securities Clearing System of theNBB

4.3.1 Major regulations

The NBB acts as the operational managerof the system and determines the rules thatgovern the Securities Clearing System inaccordance with the law (see Section 1.1).These regulations lay down the workingprinciples and rules applicable to thissettlement system, including those relating tothe types of securit ies and par tic ipantsadmitted, as well as the types of transactionsettled in the system. This generally works inaccordance with the rule which requiresdouble notification for the matching oftransactions.

4.3.2 Participation in the system

The NBB Securities Clearing System formsthe apex of a hierarchy of account holdersapproved by the Minister of Finance, beingcredit institutions and stockbroking companiesestablished in Belgium or Luxembourg. Other

participants are the State Treasury and thecentral bank itself. Institutions such as Cedel

and Euroclear are allowed to participatefor securities denominated in Belgian francsand ECUs, but only on behalf of theirforeign customers. The number of directparticipants is about 200. Securities held onaccount by direct participants are bookeddirectly in the books of the NBB, asmanager of the system, and in theparticipants books for so-called sub-participants (with a maximum of four layersin all, the NBB included). Participants andsub-participants must segregate their own

assets from assets maintained in the systemfor their customers accounts.

The main types of account are:

the partic ipants own account, on whichit keeps its own portfolio;

two global customers accounts11that areused for all the customers, on which theparticipant books those transactions that

it performs for its customers. The balanceson these accounts will be broken downby the participant itself for all thecustomers in its own books;

one pledge account on which theparticipant forms a pledge of securitieseither on behalf of another participant (inthe context of bilateral loans againstpledges), or on behalf of an institution asa result of a contract that may not evenconcern a securities transaction. Someamounts also appear on the pledgeaccount in the event of an automaticpledge has to be taken to secure anautomatic borrowing of securities grantedby the pool of lenders managed by thesystem.

4.3.3 Types of transactions handled

In 1991 the NBB introduced a DVP system

for operations in Treasury bills and linearbonds. A year later, other categories of11 X/N accounts (see Section 4.2.4).

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dematerialised securities, such as bills issuedby the private sector, also entered the system.

Furthermore, in 1994, the system wasprepared for handling securities denominatedin foreign currency and new issues of standardgovernment bonds. The system is alsoprepared to handle ECU-denominatedsecurities when such instruments are issuedby the Belgian Government.

The types of transactions can be subdividedinto primary market transactions, secondarymarket transactions and other transactions.

Primary market transactions

Before submitting a bid when there is aninvitation to tender, a bidder who is not aparticipant in the system must indicate in itsapplication to the Treasury administration theparticipant or sub-participant, who must bean account holder, with whom a securitiesaccount has been opened and through whompayments will be made. On the day of

tender, the Securities Clearing System receivesa list of tenders awarded by the Treasury.The participant approves the direct tendersfrom its customers, giving authorisation for itscash account to be debited on the day ofpayment.

The amounts to be paid in respect ofsubscriptions are integrated into the cashbalance of the participants other transactions.Once the Clearing House of Belgium hasclosed, a tender securities account will becredited for each participant with the amountof its direct subscription. This amount is thendistributed to the various sub-accounts heldby the system by internal transfer. Customertenders wil l be credited to the customersaccount as soon as they are paid.

On the date the securities mature, thesystem automatically integrates the amountsto be credited in the partic ipants cashbalance at the end of the day. On the due

date for interest payments, the systemautomatically credits participants with a

position in the securities concerned withthe amount of interest calculated on the

basis of the final balances for the previousday.

Secondary market transactions

Notifications concerning transactions onthe secondary market must be sent to theclearing system as soon as the transaction isconcluded. Two notifications are neededfor each transaction with the exception ofinternal transfers and conversions (see

below).

The following secondary market transactionscan be handled:

outright purchases or sales: these trans-actions generate a movement of securitiesand a cash flow in the opposite direction;

cession-retrocession (repo): the noti-fication will state two due dates and two

cash amounts. When clearing the cashleg of such a transaction, the SecuritiesClearing System will automatically initiatethe forward transaction on the pre-arranged due date;

securities swap: the parties exchangesecurities for a limited period of time.Likewise, in this case the Clearing Systemwill automatically generate the forwardpart of the transaction;

free transfer: securities can be transferredbetween two participants without anycash movement within the system;

internal transfer: a single notification isneeded to transfer securities from onesub-account to another held by the sameparticipant;

borrowing and lending of securities: fora simple loan such as a repo, the system

itself automatically initiates the forwardpart of the loan transaction. Loans can

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also be negotiated for an unlimitedperiod. In such a case, the second part

of the transaction will be generated onlyon the basis of the borrowers notificationto settle the retrocession. Loans againstpledges are also possible. The systemguarantees that the pledged securities willnot be released before the loan is repaid.These pledged securities are transferredfrom the borrowers own account to apledged securities account. The allowanceto be paid by the borrower on the duedate is included in the global cash amountto be settled.

Other transactions

Any transaction can be cancelled by itssender on the basis of a cancellationnotification. It is possible for a participant tocorrect a transaction unilaterally up to 11 a.m.If the transaction to be cancelled has alreadybeen matched, both participants concernedhave to send a cancellation notification.

Securities can be pledged with the agreementof the beneficiary who may or may not be adirect participant. The pledge will only bereleased on the basis of written authorisationfrom the beneficiary.

4.3.4 Operation of the transfer system

Notifications are sent by participants viaS.W.I.F.T. or by fax. After matching has takenplace, the revocation of operations is nolonger possible, unless bilaterally agreed. Thecut-off time for same-day transactions is3 p.m. The cash balance resulting from thefinal processing (including automatic bondlending) is sent to the Clearing House ofBelgium or to the participants NBB currentaccount. If there is no default on payments,the transfers of securities and cash are final.

4.3.5 Transaction processing environment

The securities settlement system is fullycomputerised. In most cases (85%), the dataexchange between the participants and thesecurities settlement system takes place viastandard S.W.I.F.T. messages. The systemoperates with a very high degree of reliability.Immediate backup facilities exist both withinthe NBB as well as at an external backupcentre provided by a computer firm.

4.3.6 Settlement procedures

When the settlement is being processed,securities are delivered insofar as they areavailable on the vendors securities account(after automatic bond lending, see Section4.1.2), and insofar as sufficient cash hasbeen recorded on the buyers account.The transactions thus processed areirrevocably and simultaneously recorded inthe securities and cash account. In theevent of insuf f ic ient secur i t ies the

transactions are cancelled. Should aparticipant have a net debit position in theClearing House which exceeds its creditfacility with the NBB, and should it also beunable to borrow from other creditinstitutions, all of its transactions will have tobe unwound.

4.3.7 DVP arrangements

The essential characteristic of the SecuritiesClearing System is the simultaneous netsettlement of both securities and fundstransfer instructions (DVP model 3 systemaccording to the 1992 BIS Report on DeliveryVersus Payment in Securities SettlementSystems). The positions in securities andcash are indeed established on a net basis atthe end of the day and the transfers are onlyfinal if there are sufficient securities and cash(principal risk is eliminated).

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4.3.8 Credit and liquidity risk control measures

No credit (either in cash or in securities) isgranted without collateral. Several provisionalprocessing cycles during the day as well ascommunications to the participants stating theprovisional net balances (cash and securities)are intended to reduce problems at the end ofthe day. In the event of insufficient securities,the transaction in question is cancelled (thisoccurs extremely rarely beca