tagien target information b

THE TRANS-EUROPEAN AUTOMATED REAL-T IME GROSS SETT LEMENT EXPRESS TRANSFER SYSTEM

users reliabilitybenefits accessfeatures

E U R O P E A N C E N T R A L B A N K

9805132 Target engl. PDF 06.07.1998 11:45 Uhr Seite 2

2Published by:European Central BankFrankfurt am MainJuly 1998

Concept and design by:EURO RSCG AdvertisingDsseldorf

Lithography by:Color Service GmbH Dsseldorf

Printed by:Margreff Druck GmbHEssen

Photographs and pictures:Christian Stoll, Gruner & Jahr, Tony Stone, Zefa

ISBN 92-9181-002-9 (EN)

3

p.8 What are the advantages of usingTARGET?1) Flexible liquidity

management2) Risk reduction3) Real-time operation4) Operating times to

suit everyone5) The possibility of

reaching almost any EU credit institution

6) Full end-to-end transmission of information in TARGETpayment messages

7) The cost of making a payment

p.12 What makes TARGET reliable?TARGET will be a safesystemTARGET will be a high-capacity systemTARGET will be ready by4 January 1999

p.14 How will users gainaccess to TARGET?Access to a national RTGSsystem will mean accessto TARGETMultiple access points

p.15 Further informationon TARGET

p.6 Which payments can be made and whocan use TARGET?All credit transfers willbe possibleAll credit institutions will be able to use TARGET

p.4 What is TARGET?Distinctive features ofthe system and how itworksWhy TARGET has beendeveloped



Whatis TARGET?

4

Distinctive features of the systemand how it works

TARGET, which stands for theTrans-European Automated Real-timeGross settlement Express Transfersystem, is the real-time gross settlement system for the euro.

TARGET consists of fifteen nationalreal-time gross settlement (RTGS)systems and the ECB payment mechanism (EPM), which are interlinkedso as to provide a uniform platformfor the processing of cross-border payments.

TARGET is more than simply a payment infrastructure; it will offer apremium payment service which willovercome national borders betweenpayment systems in the EU.

TARGET is a real-time system: undernormal circumstances payments willreach their destination within a couple of minutes, if not only a fewseconds, of being debited from thesending participant's account; all payments will receive the same treatment, regardless of their value.

TARGET is a gross settlementsystem in which each payment will behandled individually. Acknowledgementof the successful execution of eachindividual payment order will be sentto the sending national central bank in real time.

TARGET provides intraday finality:settlement will be final once the fundshave been credited. The money received will be central bank money.

It will be possible to re-use thesefunds several times a day. Liquiditywill be tied up only for the length of time necessary for real-time settlement to take place.

TARGET is accessible to a largenumber of participants. Hence, mostcredit institutions will be able to useTARGET to make payments on theirown behalf, independently of otherparticipants.

TARGET is very easy to use. Toinitiate a cross-border payment viaTARGET, participants will simply send their payment orders to the euro RTGS system in which they participate

using the domestic message format with which they are familiar.TARGET will take care of the rest. The beneficiary participant willreceive the payment message in itsdomestic message format.

5

All existing national currency areas have an integrated payment system at their disposal; it will be essential forthe euro area to have the same facility.

The successful implementation ofthe single monetary policy will bereflected in a uniform money marketinterest rate.

The EMU-wide interbank marketwill require, first, that credit institutions have both the incentiveand the capability to manage theirliquidity positions efficiently and,second, that arbitrage operations can be executed easily and swiftlythroughout the euro area.

This in turn presupposes the existence of an integrated EMU-widepayment system to ensure that liquiditycan be transferred from one participantto another in a safe, easy and timelyfashion within the new monetary area,just as it can at present within thenational monetary areas.

TARGET is an EU-wide system for euro payments. It provides individual real-time processing and intraday finality. TARGET is very easy to use and is accessible to a large number of participants.

Why TARGET has been developed

TARGET has been developed to achieve three main objectives:

l to provide a safe and reliablemechanism for the settlement ofcross-border payments on an RTGS basis;

l to increase the efficiency of intra-EU cross-border payments; and, most importantly,

l to serve the needs of the ESCB's monetary policy.

The introduction of the euro willenable internationally-oriented financial and non-financial enterprisesin the EU to centralise their treasuryoperations, which are currently stillspread over a number of currencies. Byusing one currency instead of several,it will be possible for all enterprisesinvolved in cross-border activity tomake considerable savings.

One pre-condition for optimisingthese savings is that the paymentsystems themselves must be integrated.

users reliabilitybenefits access

features


Whichpayments can be made and who can use TARGET?

6

All credit transfers will be possible

TARGET will be available for allcredit transfers in euro between EUcountries, including those countriesnot participating in EMU.

TARGET will process both interbank and customer payments.There will be no upper or lower valuelimit for TARGET payments.

Payments directly related to monetary policy operations involvingthe ESCB as the recipient or thesender will have to pass via TARGETor the national RTGS environment.

Cross-border large-value net settlement systems operating in eurowill also have to settle their end-of-day balances via TARGET.

7

It will be possible to make credit transfers to almost all EU credit institutions via TARGET without any limitation onvalue. With special emphasis on large-value payments related to money market and foreign exchange operationsTARGET will contribute to reducing systemic risk.

All credit institutions will be able touse TARGET

There will be more than 5,000 RTGSparticipants in TARGET and almost all EU credit institutions will be accessible via TARGET.

TARGET will provide a highly efficient service for time-criticallarge-value payments. Therefore, marketparticipants should consider usingTARGET for all their large-value payments, especially those related tomoney market and foreign exchangemarket operations. This would make asubstantial contribution to reducingsystemic risk throughout the EU.

Unless both the sending institutionand the beneficiary institution havedirect access to the same alternativepayment system, TARGET could alsobe the best option for corporate cross-border payments. Such paymentsmight indeed be time critical and theamounts involved could be substantial.

Should the beneficiary institution beunable to apply the funds received, itwill be possible to return the paymentto the sending institution via TARGET.

TARGET is mainly intended forlarge-value payments. However, participants with only a limited numberof smaller cross-border corporate andretail payments to be processed shouldalso consider using TARGET for theirentire cross-border euro paymentbusiness. They would thus avoid havingto rely on the services of a competitorand even smaller institutions would beable to offer their customers an excellent cross-border payment service.

TARGET participants would thus beable to reduce their costs and offeradditional value to their customers by virtue of streamlined, integratedand automated end-to-end payment processing.

users

reliabilitybenefits accessfeatures


Whatare the advantages of using TARGET?

1

8

In TARGET liquidity will in principlebe available to participants atall times. TARGET will run smoothlyand will provide a fluid paymentsystem. National central banks willgrant free intraday credit to TARGETparticipants up to an amount participants will be able to determinethemselves by providing adequatecollateral.1 Participants will not berestricted by any net debit or creditcaps. Each participant will be able tomake a payment as and when it sochooses.

The opportunity cost of providingcollateral is relatively low: collateral isinterest-bearing and participants inRTGS systems in the euro area maywish to post collateral in order to preserve their access to the overnightstanding facility via their respectivenational central bank. It will be possibleto use the same collateral on an intraday basis.

Liquidity in TARGET will be widely available and the turnover of funds can be high. This will facilitate liquiditymanagement compared with net settlement systems,where liquidity is trapped until end-of-day settlement.

Flexible liquidity management

Connecting to different paymentinfrastructures will necessitate themanagement of multiple liquiditypositions in euro. It is important tonote that there are at present no well-established intraday liquiditybridges between different euro paymentsystems. On an intraday basis, onlythe funds received within each system can be used to make outgoing payments via the same system.

In order to reduce risk, large-valuenet settlement systems have torespect binding intraday limits on participants positions, which cannotnormally be increased during the day.Once these limits have been reached,payments are blocked. Liquidity iseffectively trapped in the net settlement system until the point atthe end of the day when the balancesof such netting systems are settled bymeans of a payment through TARGETor the domestic RTGS environment.

To ensure that sufficient collateralis available to obtain liquidity onequivalent terms throughout the euroarea, a comprehensive list of bothpublic and private eligible assets iscurrently being prepared. Nationalcentral banks are also implementing a mechanism which, for paymentsystems and monetary policy operations,will enable collateral to be used on across-border basis.

This mechanism will enable credit institutions to obtain credit from theirrespective national central bank on thebasis of collateral provided to anothernational central bank.

The Governing Council of the ECB will decidewhether, for monetary policy reasons, the availabilityof intraday credit to participants in euro RTGS systemsin non-euro area countries should be subject torestrictions. The ECBs Web site at www.ecb.int contains updated information.

1

1

users reliability

benefits

accessfeatures

9


10

Risk reduction

TARGET will provide a firm foundation for the management of payment system risks. It will give participants the possibility of settlingpayments in central bank money withimmediate finality, thus eliminatingthe settlement risk between participants which is inherent in other payment mechanisms.

TARGET payments will becomefinal for receiving participants oncethey have been credited to theiraccount held at the national centralbank. This means that participants will be able to pass on customer payments they receive to the finalbeneficiary immediately and withoutcredit risk.

Real-time operation

The high speed at which cross-border payments in TARGET will beprocessed will facilitate and improvecash management. Moreover, thiswill enable participants to increasetheir turnover of funds.

For cross-border TARGET payments,under normal circumstances, theaverage time between the debiting ofthe account of the sendingparticipant and the crediting of theaccount of the beneficiary participantwill be a couple of minutes, if not onlya few seconds.

The rapid processing of funds, whichwill be credited to the appropriateaccount with finality, will yield directbenefits for participants.

With TARGET, international corporate cash management will beable to make substantial efficiencygains. The real-time execution of TARGET payments will reduce the floatand make it possible to optimise cashmanagement in euro. Participants corporate customers might thereforebe particularly interested in havingtheir financial payments executed viaTARGET.

Operating times to suit everyone

To meet the needs of its customersand those of financial markets ingeneral, TARGET will have long operating hours, common to all EUcountries. The system will be availablefrom 7 a.m. to 6 p.m. Frankfurttime, with a cut-off time for customerpayments at 5 p.m.

The long TARGET operating hourswill help to reduce foreign exchangesettlement risk substantially. The TARGET business day will overlap withthe Fedwire system in the UnitedStates completely and with the Bankof Japan Payment System during thefirst operating hours in the morning.

In addition to Saturdays and Sundays,TARGET will only close on the two

2

3

4

public holidays that are common to allEU countries: Christmas Day and NewYears Day.

Domestic RTGS systems may closeon certain national holidays, shouldthis be requested by the national banking community. However, it ismost likely that only a few nationalRTGS systems will take additionalnational holidays. The ECB will keepthe financial community informed ofthese by publishing a calendar of TARGET operating days. The calendarfor 1999 will be available inSeptember 1998 at the latest. 11

The possibility of reaching almost any EU credit institution

It will be possible to reach almostall credit institutions establishedin the EU via TARGET and, hence, alltheir account holders. The BankIdentifier Codes (BICs) of TARGET participants are listed in the TARGETBIC directory.

With TARGET there will no longerbe any need for either a service levelagreement with other participants oran exchange of S.W.I.F.T. keys.

Full end-to-end transmission of information in TARGET payment messages

No payment-related informationwill be lost in TARGET. The paymentinstruction, if provided in accordancewith the standards, will always be forwarded in its entirety to the beneficiary participant.

During the transition period, from1999 to 2002, participants may wishto specify both the euro amount forsettlement purposes and the originalamount and currency denominationfor information purposes. S.W.I.F.T. hasdeveloped a structured method toenable financial institutions to supplyeuro-related information. TARGET willsupport its transmission.

The cost of making a payment

The fee charged for cross-borderTARGET transactions (excluding VAT)will be based on the number of transactions made by a participantwithin a single RTGS system, accordingto the following degressive scale:

l 1.75 for each of the first 100 transactions per month;

l 1.00 for each of the next 900transactions per month;

l 0.80 for each subsequenttransaction in excess of 1,000 per month.

The fee will be charged by the sending national central bank only andwill be identical, irrespective of thedestination or size of the payment. Itwill cover the handling and processingcosts of the transaction, with theexception of the communication costbetween the ordering participant and the sending national central bank. The latter may also charge extra for payment orders which are not transmitted in electronic form.

No additional entry or periodic feeswill be applied to users of the cross-border TARGET service.

TARGET will result in cost savingsfor the following reasons:

l incoming funds will be available for immediate re-use;

l it will be possible to reconcile accounts on an intraday basis;

l immediate reaction will be possibleshould any problem arise withregard to the transfer of a payment;

l the need to split liquidity between several payment systems during the day can be avoided.

6

75

users reliability

benefits

accessfeatures


Whatmakes TARGET reliable?

12

TARGET will be a safe system

TARGET has been developed by allthe EU national central banks, most ofwhich have a long and proven trackrecord in building and running RTGSsystems.

TARGET testing started as early asJune 1997 and is based on a well-structured modular testing strategy,which includes a six-month simulationperiod. Hundreds of hours of tests of TARGET components, which willinvolve credit institutions during thesecond half of 1998, will cover the functionality of a TARGET business dayfrom start to finish.

Each national central bankparticipating in TARGET has a fullbackup system to ensure that - withthe exception of unforeseen disasters -its processing capacity will never beout of action for more than one hourduring any single working day.

S.W.I.F.T. FIN has been chosen asthe network service provider for theInterlinking system. Agreements havebeen concluded with S.W.I.F.T. with aview to providing the best possiblesupport in terms of speed, capacity,availability and security.

The security policy for TARGET isbased on an agreed security strategyand methodology and is implementedusing a life-cycle approach. Riskanalysis of TARGET as a whole hasbeen conducted on a regular basissince the beginning of 1997.

13

TARGET will be ready by 4 January 1999

Payment systems experts from allEU national central banks and the EMIhave been working on TARGET since1995. A detailed timetable for theTARGET project was defined at theoutset and since then the variousstages have been implemented on a step-by-step basis and on schedule.

A testing and simulation phaselasting eighteen months was plannedand started slightly ahead of schedulein June 1997. Progress made in the development, implementation andtesting of all TARGET components isbeing monitored continuously so as to ensure the timely and successful completion of the TARGET project.

TARGET will be fully operational onthe first business day of Stage Threeof Economic and Monetary Union, i.e. 4 January 1999.

TARGET will be a high-capacitysystem

TARGET will operate for elevenhours each working day. This will offerconsiderable scope for cross-borderpayment processing.

Participants will be able to inputtheir payments throughout the day and thus spread them across the dayaccording to their individual businessneeds.

TARGET will be able to absorb aconsiderable volume of paymentsthanks to its fast processing time.

Partial volume tests were conductedon the national RTGS systems in thefirst half of 1998, while the simulationtests scheduled for the second half ofthe year will include a number of fullvolume tests. In addition, in order toensure that the system will be able toreact immediately to increasing marketdemands, all the TARGET componentshave been designed to be flexible withregard to changes in processing volumes.

TARGET has been developed and thoroughly tested withthe objective of providing a secure and efficient service.TARGET is a high-capacity system with extensive operatinghours and fast processing.

users

reliability

benefits accessfeatures


Howwill users gain access to TARGET?

14

Access to a national RTGS systemwill mean access to TARGET

Access to their respective domesticeuro RTGS system will be sufficient toenable participants to make cross-border TARGET payments. No separateconnection will be required.

TARGET will enable participants touse their existing system to integratethe processing of cross-border anddomestic payments. Detailed information on access to the nationalRTGS systems can be obtained fromthe national central banks concerned.

Multiple access points

Most credit institutions are expected to become participants inthe euro RTGS system of their homecountry. Credit institutions with awide network of branches or subsidiaries across the EU could chooseto become members of different euroRTGS systems within which theywould be able to obtain intraday creditfrom their respective national centralbanks.

Since remote access will also bepermitted, depending on their businessneeds individual participants couldapply for access to any or several ofthe fifteen euro RTGS systems, irrespective of their location.

Although it is unlikely that, at thestart of EMU, intraday credit will begranted to participants on a remotebasis, it will nevertheless be possible for liquidity to be transferredinstantaneously from a participantshome national central bank to the RTGSsystem in which the liquidity is required.

TARGET payments can be made via the following systems:

Belgium: ELLIPSDenmark: DEBESGermany: ELSGreece: HERMES euroSpain: SLBEFrance: TBFIreland: IRISItaly: BI-RELLuxembourg: LIPS-GrossNetherlands: TOPAustria: ARTISPortugal: SPGTFinland: BoF-RTGSSweden: ERIXUnited Kingdom: CHAPS euroEuropean Central Bank: EPM

In accordance with Community practice, countries are listed using the alphabetical order of the nationallanguages.

15

users reliabilitybenefits

access

features

l The single monetary policy in StageThree Specification of the operational framework, January 1997.

l Annual Report 1996, April 1997.l End-of-day procedures in

TARGET, September 1997.l Second progress report on the

TARGET project, September 1997.l Technical annexes to the second

progress report on the TARGETproject, September 1997.

l The single monetary policy in Stage Three: General documentation on ESCB monetary policy instrumentsand procedures, September 1997.

l The TARGET service level, July 1998.

Some of the publications listedabove are available in EU languagesother than English. Further informationis available from:[email protected]

Further information on TARGET

The documents listed here can beaccessed via the ECBs Web site athttp://www.ecb.int

Alternatively, hard copies can beordered from any of the nationalcentral banks or from the ECB at theaddress given below:

European Central BankPress OfficeKaiserstrae 29D-60311 Frankfurt am MainFax: +49 69 13 44 74 04

l The EMIs intentions withregard to cross-border payments in Stage Three, November 1994.

l Annual Report 1994, April 1995.l The TARGET system (Trans-

European Automated Real-timeGross settlement Express Transfersystem; a payment arrangementfor Stage Three of EMU), May 1995.

l Annual Report 1995, April 1996.l First progress report on the

TARGET project, August 1996.l Technical annexes to the first

progress report on the TARGETproject, August 1996.

980d5132 Target engl. PDF 06.07.1998 11:50 Uhr Seite 16

THE TRANS-EUROPEAN AUTOMATED REAL-T IME GROSS SETT LEMENT EXPRESS TRANSFER SYSTEM


E U R O P E A N C E N T R A L B A N K


tagien target information b

Documents