Beruflich Dokumente
Kultur Dokumente
December 2, 2010
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered including such clients subsidiaries, (the Company) in order to assist the Company in evaluating, on a preliminary basis, c ertain products or services that may be provided by J.P. Morgan. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. It may not be copied, published or used, in whole or in part, for any purpose other than as expressly authorised by J.P. Morgan. The statements in this presentation are confidential and proprietary to J.P. Morgan and are not intended to be legally binding. Neither J.P. Morgan nor any of its directors, officers, employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in, or discussed as a result of, this document. J.P. Morgan makes no representations as to the legal, regulatory, tax or accounting implications of the matters referred to in this presentation. IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. taxrelated penalties.
THE ROAD AHEAD
J.P. Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank, N.A. and its subsidiaries worldwide. In the United Kingdom, JPMorgan Chase Bank, N.A., London branch and J.P. Morgan Europe Limited are authorised and regulated by the Financial Services Authority JPMorgan Chase is licensed under US patent numbers 5, 910,988, and 6, 032 and 137 2006 JPMorgan Chase & Co. All rights reserved.
Agenda
14:00 Welcome address
Muriel Meers, Head of Financial Institutions Sales, Benelux, France, Greece & Cyprus
14:15
15:00
16:00
Refreshment break
16:15
Recent developments in US Dollar Clearing: How to manage payment charges in the US advancements in US dollar Clearing & FX Update on MT202 Cover Payments
Peter Vernon, Executive Director, Product Specialist, Core Cash Management EMEA
17:00
THE ROAD AHEAD
Recent developments and emerging best practice in International Currency Clearing and Settlement
David Tudor, Vice President, Product Specialist, Core Cash Management EMEA
17:45
INITIATIVES
IMPACTING
INSTITUTIONS
INSTITUTIONS
Regulatory Capital
Basel III, managing systemic risk and financing by using tax or levy on banks
European Reform
Asian Reform
Expected to
No regional
Comprehensive reform.
Collins Amendment
Asia may play the moderating role in global discussions if aligned with domestic interests.
withdrawn
envisaged nationally.
Driver
REGULATORY AND INDUSTRY INITIATIVES IMPACTING FINANCIAL INSTITU TIONS
Area of impact
Potential implications
Basel III
FIs:
Interbank lending and wholesale
lending
Trade financing may become less
profitable business
Leverage and liquidity coverage
rules
NBFI:
Access to credit
Supervisory Structure
Driver
REGULATORY AND INDUSTRY INITIATIVES IMPACTING FINANCIAL INSTITU TIONS
Area of impact
US
Financial Stability Oversight Council
standards
Market discipline Higher reporting burden Limitations in trading in
risk instrument
New levels of statutory
three new European Supervision Authorities (ESAs): ESMA, EBA , EIOPA, plus national changes
ASIA
AMRO (ASEAN+3 Macro-Economic
authority
Asian economies will pursue the Compliance to Global Regulatory Requirements agenda and the Controlled Growth agenda in tandem. RMB growth to be watched
Initiative
REGULATORY AND INDUSTRY INITIATIVES IMPACTING FINANCIAL INSTITU TIONS
Description
Lessons learnt from Asian currency crisis. Enhancing eligibility and cross border transfer of collateral Enhancing safety as part of a BAU regulatory activity in
the region.
Continuous ambition towards a regional settlement
RMB activities
up from $19 billion to $90 billion, as a risk based liability fee over 10 years on all financial institutions with assets of more than $50 billion that were eligible for emergency assistance during the financial crisis)
EU proposed tax on banks to finance national ex-ante resolution funds UK levy on bank liabilities to raise 2.5 billion yearly GER draft levy proposal on consolidated balance sheet minus liabilities (15%
profit cap)
FR intended systemic risk levy and open to ex-ante resolution fund up to 1
billion
Proposed financial activities tax (Tobin tax) UK, GER, FR Windfall taxes on bankers bonuses
Going forward: an unprecedented level of international cooperation is necessary to achieve global regulatory reform.
In his testimony to the U.S. Senate, Federal Reserve Governor Daniel Tarullo enumerated the goals for international cooperation:
REGULATORY AND INDUSTRY INITIATIVES IMPACTING FINANCIAL INSTITU TIONS
common regulatory standards for large financial firms and important financial markets
Prevent major competitive imbalances between U.S. and foreign financial
institutions a core set of good, common standards will reduce opportunities for cross-border regulatory arbitrage
Establish effective supervision of global financial institutions through a clear
understanding of home and host country responsibilities, and through adequate flows of information and analysis
Exchange information and analysis to identify potential sources of financial
instability, and take action to mitigate the buildup of risks in the global financial markets
Regulation for setting essential requirements for credit and debit transfers in euro through ISO20022 standards (two years for SCT end-date, three years for SDD) Teething issues for the PSD
Charging issues SHA vs. OUR/intermediary fees Location of account/status of account holder (FIs can act as Payment Service
SEPA Credit transfers Scheme CANNOT be used to process OLO transactions Compliance with AML checking is an ongoing issue Opening an Account in SEPA enables SCT payments Significant charging differential between SCT and OLO transactions
Cross border VAT obligations (equal treatment of paper and e-invoices) Adoption of a cross industry e-invoice standard (UN/CEFACT CII V.2 plus ISO
version)
Provision of interoperable services and integration of SMEs
J.P. Morgan Chase is supportive of sound reform, and well positioned to continue to offer market-leading products and services to our customers.
Supportive of sound reform
REGULATORY AND INDUSTRY INITIATIVES IMPACTING FINANCIAL INSTITU TIONS
some will have unintended consequences J.P. Morgan has 75+ existing work streams dedicated to implementing reform We are committed to ensuring that regulatory reform implementation is in line with clients needs Impact of Volcker rule
Tier 1 common ratio under Basel I (estimated 9% 4Q11 Tier 1 common under Basel III) Very high level of reserves: $36.7B and loan loss reserves: 5.34% Stable source of funding: $900B deposit base
Does not limit the growth of our client business and our market-making activities We can continue to sponsor client-only hedge funds (e.g., Highbridge) We can continue to make permissible merchant banking investments in private
equity (e.g. One Equity Partners) Remaining proprietary trading will transition to asset management
Fall in return on equity compliance costs up 33% Potentially more attractive less-regulated markets offshore
major player without disrupting the financial industry needs clear resolution authority
Ongoing focus on consumer protection legislation
Questions
Agenda
Regulatory changes: The industry is in this for the long-term in the USA, there are 285 rulemaking requirements, 92 one-time studies and 44 periodic reports.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Common equity to 7%
Minimum leverage ratio Liquidity coverage ratio Net stable funding ratio
Volcker rule
Collins amendment
EU
Institutional framework
UK
The Basel committee has agreed on new capital requirements as of Sept 13th and will continue to address further reforms to liquidity ratios.
Regulation
Basel III
Description
Agreed to changes as of Sept 13th, 2010:
Tier 1 capital minimums from 4% to 6% of risk-weighted assets by
2015.
Common equity minimum from 2% to 4.5% of risk-weighted assets by
starting in 2011; minimum to be introduced in 2018. Minimum leverage ratio of 3% being tested during the parallel run period (20132017).
Liquidity coverage ratio (liquid assets / 30 day cash outflow) to be
Among the first countries to propose a new regulatory framework, the UK is awaiting final global rules before finalizing reforms.
Regulation
UK Changes
Description
Banks are required to improve reporting and controls around liquidity,
and to maintain a buffer of liquid assets. Timeline is flexible and contingent upon improvement of economic conditions.
Stricter capital requirements have already been imposed on targeted
banks, but statutory requirements will be set in conjunction with global rules.
A levy on bank wholesale liabilities will start at 4bps in Jan, 2011 and
E F F E C T I V E L I Q U I D I T Y M A N A G E M E N T I N T O D A YS M A R K E T : CONSIDERATIONS FOR LIQUIDITY BUFFERS
rise to 7bps.
A new institutional framework will have three regulatory bodies
responsible for (1) maintaining financial stability, (2) prudential regulation of systemically important firms, and (3) conduct of business for all firms, consumer protection, and supervision of smaller firms.
Area of impact
Banks: interbank lending and wholesale lending NBFI: access to credit
Potential implications
Reduction of interbank lending. Alternate sources of funding may be necessary for banks. Higher cost of credit and reduced credit availability due to higher
cost of capital.
Increased costs due to: Opportunity cost as a higher percentage of assets are forced
buffer regularly.
Reduced self-funding options due to requirement to hold a
Credit and liquidity continued: more instrument choice. Money market reform will
change the profile of money market exposure.
Driver
U.S. Repeal of Reg. Q
Area of impact
Banks and NBFIs: more choice for short term cash.
Potential implications
A new product suite will likely be created by most banks, including
mitigate fees, and time deposits for companies who want to trade tenor and liquidity for rate.
E F F E C T I V E L I Q U I D I T Y M A N A G E M E N T I N T O D A YS M A R K E T : CONSIDERATIONS FOR LIQUIDITY BUFFERS
Money market funds: Restricted pool of investment opportunities Banks: may benefit from lower funding cost of commercial paper. All Companies: changing exposure profile of money market funds.
New limitations will put downward pressure on yields. This will put
Some funds have begun to use non-government securities collateral for repos (which are usually backed by government bonds) in search for higher yields.
Higher concentration of exposure in European bank paper as
quality liquid resources to survive a combined idiosyncratic and market-wide shock, which would result in a three-notch downgrade of an institutions public credit rating, over 30 days
Liquidity Coverage Ratio: Stock of high quality liquid assets 100% Net cash outflows over a 30-day time period
E F F E C T I V E L I Q U I D I T Y M A N A G E M E N T I N T O D A YS M A R K E T : CONSIDERATIONS FOR LIQUIDITY BUFFERS
The Net Stable Funding Ratio (NSFR) measures the amount of longer-term, stable
sources of funding with maturities greater than or equal to one year, employed relative to the liquidity profiles of the assets funded and the potential for contingent calls of funding liquidity arising from off-balance sheet commitments and obligations
>100%
OECD foreign government securities are considered as highly liquid assets, while Agencies and Agency MBS securities are not included
Deposit outflow assumptions not synchronized with empirical evidence Run-off factors linked to segment and operating based assumption
E F F E C T I V E L I Q U I D I T Y M A N A G E M E N T I N T O D A YS M A R K E T : CONSIDERATIONS FOR LIQUIDITY BUFFERS
term value
Net Stable Funding Ratio Financial and Sovereign deposit customers are not considered stable funding
components
Agencies and Agency MBS securities (including dollar rolls) would require
year is 0%
If your firm does not have or only has limited access and the scale to maintain its own repo
capability or to hold large buffers of government bonds, our solution can help you to address the practical difficulties of managing the liquid asset buffer.
Dependent on business, treasury and liquidity risk profile the following questions are important to
be considered before defining the right composition of the liquid asset buffer.
EUR, USD, GBP or any other currency? What is the right mix of central bank reserves, directly held govt securities, reverse repos and qualifying MMFs? What should be the allocation to overnight vs. term positions? UK, US, EU member states or any supranational body?
What type of instruments should make up the buffer? What should be the maturity profile of the buffer? Which governments debt the buffer should use?
Assets must be held in an account with one or more custodians. What level of diversification is required?
For simplified firms, the option of automated daily sweep access to USD Treasury, GBP Gilt and EUR Government funds from J.P. Morgan Asset Management.
INVESTMENT ENGINE
Flexible tenor of underlying investments can accommodate objectives to withdraw money whether a portion is needed tactically or strategically. Standard operating model includes 40+ financial institutions with minimum short-term Moody's/ Standard & Poor rating of A1/P1, J.P. Morgan Asset Management credit team monitors ratings and views of counterparties on a daily basis. Clients can choose to limit exposure to certain, or to exclude entirely, counterparties, countries or instruments in order to structure their investments in line with regulatory requirements. Managed through J.P. Morgan Securities Lending Platform which manages $300+ billion in assets. Access to a wide range of qualifying money market funds.
LIABILITY SIDE
E F F E C T I V E L I Q U I D I T Y M A N A G E M E N T I N T O D A YS M A R K E T : CONSIDERATIONS FOR LIQUIDITY BUFFERS
Reduce S/T funding ; establish ECP / EMTN issuance programmes. Increase L/T funding : issue unsecured senior debt, private placements, securitize. Increase retail / HNWI deposits ; eliminate inter-bank transactions
Comments
Example of items not included in LCR
100% factor
$83B: US Treasuries / Sovereigns
100% factor
186
53%
85% factor
$7B: Public fund deposits collateral
25% factor
$2B: Eligible Corp. Securities ( AA- ) Fed Discount Window Eligible loans (~$80B)
85% factor
Historic experience during the financial crisis
$124B: Non-Operational Deposits 75-100% factor $101B: Wholesale Operational & Retail/SME Deposits 5-25% factor
349
$89B: Liquidity Commitments & FI Credit Commitments 100% factor $11B: Wholesale Credit (ex FI) & Retail Commitment outflow 5-10% factor
would have outflows / draw-downs; it is prudent to be prepared J.P. Morgan experienced 6-8% drawdown on unfunded balances
$31B: Secured funding outflow (Repo) 10% factor ($7B): Other funding Inflows/Outflows 0-100% factor
Financial crisis occurred between late 2007 and mid 2009 Includes impact of account payable/receivable, trading assets derivatives payable/receivable, and other contractual payments <30 days Note: Preliminary view (as of 9/7/10) of J.P. Morgan LCR ratio based on interpretation of current rules/ initial estimates of 2Q10 asset buffer and net funding outflow. Subject to change as interpretation of Basel III liquidity rules is ongoing and dependant on guidance from Basel/International regulators Numbers rounded for presentation purposes. Ratios and other calculations may not round perfectly
Business evolution
Business evolution
Raise Unsecured Term Debt (e.g., term CP, CDs, and 1+ year notes) Term-out existing Short-Term debt Raise Secured Term Debt (e.g., FHLB, Auto and Card ABS) Reduce illiquid assets so that proceeds can count towards the buffer Consider profitability impact Raise additional Retail deposits Consider profitability impact
Business evolution
through pricing
Consider client impact Reduce wholesale deposits probably done through pricing Convert Financial Institution deposits to Term
Questions
J.P. MORGAN ASSET MANAGEMENT GLOBAL LIQUIDITY Julie Maquest Vice President, Asset Management Sales Belgium & Luxembourg
STRICTLY PRIVATE AND CONFIDENTIAL
Typical Investments
Government Bills
Time Deposits (TD) Certificates of Deposit (CD) Commercial Paper
2a-7, IMMFA)
1 An investment in a money market fund is not insured by the FDIC or any other government agency. Although money market funds strive to preserve the value of the investment at $1.00 per share, it is possible to lose money by investing in a money market fund
Sep 2008 A US MMF breaks the buck only second fund to do so in 40 years Jan 2007 Basel II comes into effect in Europe Feb 2003 IMMFA Code of Conduct introduced Spring 2009 SEC announces intention to enhance the regulatory regime for US MMFs Jan 2010 SEC has adopted new rules for MMFs to increase investor protection, improve fund operations and enhance disclosures
3,000
2002 MMFs in Europe can be classified as UCITS funds 1999 Single currency introduced in the EU
Nov 2007 Europe's MIFID directive allows client monies to be held in MMFs
1,000
1970
1980
1990
2000
2010
Oct-73
Oct-78
Oct-83
Oct-88
Oct-93
Oct-98
Oct-03
Jan-70
Jan-75
Jan-80
Jan-85
Jan-90
Jan-95
Jan-00
Jan-05
Oct-08
Source: i-MoneyNet
Jan-10
Apr-71
Apr-76
Apr-81
Apr-86
Apr-91
Apr-96
Apr-01
Apr-06
Jul-72
Jul-77
Jul-82
Jul-87
Jul-92
Jul-97
Jul-02
Jul-07
Corporate
IFAs
Liquidity Funds
Pension Funds
Supra Nationals
Tier-1: AMB-1, R-1, F-1, P-1/MIG 1, A- Investment grade Moodys Baa or higher 1/SP-1 S&P BBB or higher Tier-2: AMO-1, R-2, F2, P-2/MIG 2, A-2/SP-2 Tier-2: Max 3% Issuer Concentration Tier-1: Max 5% Tier-2: Max 3% / Max 0.5% any single issuer Diversification per issuer Max 10% Rule 5/10/40: Positions between 5% and 10% must not in aggregate exceed 40%
Maintain one of the following ratings: Fitch AAAmmf S&P AAAm Moodys Aaa/MR+ Comply with the diversification requirements imposed by the rating agencies Funds registered as UCITS must operate within the diversification requirements set out in UTCITS legislation (Directive 85/611/EEC)
Diversification/ concentration
Repo (lend cash) Percentage limit: Max 25% per ctpy Credit quality fully collateralized that consists of cash items or Govt Illiquid securities Percentage limit: Max 5%
Percentage Limit Deposits Max 20% per ctpy Repo Max 25% per ctpy Percentage limit: Max 10% Percentage limit: Max 10%
Portfolio liquidity Min 10% daily2 / Min 30% weekly3 Tax-Free MMF exempted from daily liq
1 2
WAM = Weighted Average Maturity. 1 Illiquid securities include Repos and Depos >7 days Assets must be in cash, U.S. Treasury securities, or securities that convert into cash within one day. 3Assets must be in cash, U.S. Treasury Securities, certain other government securities with remaining maturity of 60 days or less, or securities that convert into cash within five business days
Brothers files for protection under Chapter 11 of the U.S. Bankruptcy Code after losing 94 percent of its market value this year Sep 15
conjunction with other central banks quadruples the amount of dollars its counterparts can auction around the world to $247bn Sep 18
Goldman
JPMorgan
Three
Sachs, Morgan Stanley bring down curtain on era as they are transformed into commercial banks
Sep 22
acquires Washington Mutual from the Fed after WaMu is taken over by the FDIC
Sep 7
Sep 26
Sep 30
Sep 14
Merrill Lynch
Sep 17
Reserve Fund
Sep 19
U.S. Treasury
Sep 25
Hedge funds
Sep 29
$700bn
agrees to be sold to Bank of America in an all stock deal for $29 a share
nationalised
Fortis rescued
Act 1
Act 2
$170 Bn
$646 bn
$83bn
$473bn
Source: Offshore Money Fund Analyzer (iMoneyNet), October 01, 2010. Please note: Assets are in USD with historical FX rates. NOT FOR SALE IN THE U.S. OR TO U.S. PERSONS
very technical questions about our portfolios, holdings, credit process, risk management process, etc
Launched Liquidity Insights programme to
but continued to buy the names and programmes that we were comfortable with
Increased overnight liquidity bucket from
5-10% to 20%+
Reduced tenors and exposure on certain
share our knowledge and insight with clients via conference calls, white papers, webinars, client round tables, etc
Launched new government only liquidity
names
Removed certain securities and
funds including: Euro Government, USD Government and Sterling Gilt to complement our existing USD Treasury Liquidity Fund
risk first hand when certain securities such as SIVs could not be sold in the secondary market
with headline risk and publicly declared our lack of exposure to certain names such as Lehman, AIG, WAMU
We answered numerous client questions
between 2060%
Happened naturally, as securities
What happens if JPM fails? How are the assets of JPM ring fenced
exposure to Irish banks, broker dealers, and certain EU countries such as Greece, Portugal, Ireland and Slovenia
Continued to reduce tenor and increase
credit quality. A1+/P1 increased from 50% to more than 80% of the portfolios
We will only buy the highest tiered credit
to USD Treasury
The Euro Govt fund grew from 3bn at
out to 4 months. Any duration from 3-12 months comes in the form of government issued or guaranteed paper
Access to professional investment management Credit analysts Portfolio managers Traders Macro/micro economists and strategists Cost savings outsourcing Funds offer a more simplified accounting procedure Custodial costs are included in the funds expense ratio The size of the funds enables them to achieve more efficient trade execution, thus reducing
transactions costs
Fast implementation / low set-up cost
Questions
REFRESHMENT BREAK
RECENT DEVELOPMENTS IN US DOLLAR CLEARING Peter Vernon Executive Director, Product Specialist, Core Cash Management EMEA
STRICTLY PRIVATE AND CONFIDENTIAL
Regulation
Technology
Some reduction in barriers to entry in UK banking.
Liquidity
settlement mechanisms.
Liquidity management. Capabilities gap between large Global Clearers, and
Competition
RECENT DEVELOPMENTS IN USD CLEARING
thinning.
Trade Solutions
3 regional hubs 23 locations globally
minor currencies including US$, , , , SGD HKD, AUD,INR, RMB, RUB and MXN
Over 4.500
Access to over 44
and concentration
Overnight and short
currencies
term Investments
Risk management
SEPA solutions
solutions
Global technology, operating and service platform providing consistency and resiliency Global footprint providing reach, local expertise and service for you and your clients
Treasury Solutions
Solution Summary
Payments and receipts in over 40 currencies through in-country or multicurrency accounts across every region
Value Add
Industry leading book transfer and STP rates Intelligent routing and advanced auto repair
functionality
Payment Prioritisation Options for urgent / priority
payments
Multiple and flexible charging options Includes complex currencies like RUB, INR, RMB
and others
Domestic or cross border bulk electronic, paper or recurring payments including payroll, tax and normal accounts payable processing
Access to over 44 local clearing systems around the globe Fully SEPA compliant Euro solution Single electronic interface for all payments Cheque printing and collections for bulk payments
Foreign Exchange
RECENT DEVELOPMENTS IN USD CLEARING
AutoConvert option converts into the Facilitate cross-currency beneficiarys local currency prior to payment AutoFx moves funds into/out of your existing electronic payments and receipts accounts in over 135 currencies with Multiple channels to access service depending solutions tailored to clients needs time and rate sensitivity Investment solutions designed for the needs of our clients short term cash End-to-end trade solutions including concentration, reissuance, traditional trade financing, SBLCs and supply chain financing Global program covers 95 countries and 28 currencies designed for expense management Wide array of investment options and currencies Sophisticated array of escrow arrangements for the specific control clients need Full service or modular approach to solutions Extensive network globally 23 offices with 5 branches in China growing to 9 Local expertise drives speed of processing Corporate Travel Card and Purchasing Card Innovative expense control and tracking tools Dedicated 24x7 support team
Trade Finance
Commercial Cards
A customized solution
Financial strength and unparalleled scale fuels
>20%
97% straight-through processing rate assisted by
continuous investment in our payments platform, and ensures that we deliver the products and services you require to increase efficiency, reduce expense, and enhance your own competitive position.
Internal book transfer rate of more than 46%
improves payment timeliness, enhances payment certainty, and expedites inquiry resolution.
Extended processing hours (22 hours x 6 days per
operating systems, robust disaster recovery capabilities that are regularly tested and proven
RECENT DEVELOPMENTS IN USD CLEARING
week) enable you to complete more same-day global payments within your business day.
Best-in-class, 24 x 7 support through global client
industry groups: CHIPS, Fed, IFSA, SWIFT, CLS, EBA, NACHA, ECCO.
Best Cash Management Specialist, Financial
service representatives and dedicated operational service centres ensure that J.P. Morgan resources who understand your business are available when you need them helping you to improve service to your client base.
Resilient processing platforms provide payment
US dollar payment systems are the means by which payments are processed and settled among banks. The major methods for single, wire, financial and commercial transactions are
Fedwire CHIPS (Clearing House Interbank Payment System) Book Transfers
Fedwire
What
Fedwire is a public sector payment network operated by the US Federal Reserve
(FRB) and consists of 12 Federal Reserve Banks located across the US.
Currently there are about 9,000 participating banks (predominantly indigenous US)
How
The FRB creates liquidity in the system by establishing a de facto line of credit (known
as a debit cap.) for each participant which issue payments instructions against their Daylight Overdraft (DoD) at the FRB within this limit.
The Fed charges for intra-day liquidity (the DoD) at the annual rate of 1.5bp per hour
against the average DoD amount, and then credits the recipient banks account.
A $1bn payment resulting in a one hour overdraft cost the sender $416.67 in DoD.
Background
The Federal Reserve Bank first engaged the market in mid-2006 regarding intra-day
necks.
Need to free up liquidity to support settlements earlier in the day LSMs have been pursued for:
RECENT DEVELOPMENTS IN USD CLEARING
(held by algorithm).
Depository Trust Company: ease return of excess pre-funding amounts back to
Introduction of Collateral to support Fed Intra-day Overdraft Change in FRB Payment System Risk (PSR) Policy
In December 2008 the Fed announced the pending introduction of collateral to
support intra-day Fed Debit Cap and secure related Fed daylight overdraft (DOD). The new Payment Systems Risk policy will go into effect in 1Q2011.
Key Changes
Eligible collateral pledged at the Fed discount window will automatically be available
to support Fed DOD exposure. The pledging/use of collateral will remain voluntary but the participant bears a penalty rate if they do not pledge collateral.
Cost associated with Fed DOD which is collateralized is reduced to zero; the cost
RECENT DEVELOPMENTS IN USD CLEARING
associated with Fed DOD which exceeds available collateral is increased from 1.5bp to 2.1bp per hour, calculated on an annualized basis.
Key Benefits
Reduces the amount of unsecured intra-day credit risk which the Fed is taking on
clearing members.
Helps alleviate the expense impact of Fed DOD charges on clearing participants and
House. It services the domestic as well as the cross-border payment needs of 54 US and overseas participant banks, accounting for an estimated 95 percent of all international inter-bank dollar transfers.
It is a continuous real time net settlement system, which uses an algorithm for
bilateral and multi-lateral netting which, with minimal pre-funding, continually offsets and settles payments throughout the day. Payments (+/- 650,000 transactions daily) are matched, netted, and settled, usually in a matter of seconds. How
Opening position requirement is the participants mandatory pre-funding amount at
RECENT DEVELOPMENTS IN USD CLEARING
The minimum current position allowed is zero while the maximum can be twice the opening position.
If the release of an individual payment message would cause the sending participants
current position to fall below zero, or cause the receiving participant to exceed its maximum, the balanced release algorithm will search for payment messages from the receiving participant to the sending participant. These will be bundled in a batch and netted against the first participant's payment message.
2008 Volume 315,640,963 65,686,769 40,617,588 34,835,670 33,947,585 26,422,563 21,892,075 21,100,549 13,949,777 9,771,848 5,727,441 5,724,821 4,271,300 3,983,100 6,245,404 2,834,241 1,346,950 17,283,281
299,653,629 62,011,444 39,042,522 35,407,888 31,549,718 24,278,856 21,892,351 19,762,123 14,655,150 12,297,451 4,916,276 4,870,214 4,084,139 3,445,277 2,410,430 2,831,215 1,281,674 14,916,901
JPM Chase CITI Bank Bank of America Bank of NY Mellon Wachovia HSBC Deutsche Bank Wells Fargo Standard Chartered UBS ABN Barclays Bank of China American Express BOTM M & T Bank All Others
20.69% 13.03% 11.82% 10.53% 8.10% 7.31% 6.59% 4.89% 4.10% 1.64% 1.63% 1.36% 1.15% 0.80% 0.94% 0.43% 4.98%
20.81% 12.87% 11.04% 10.76% 8.37% 6.94% 6.68% 4.42% 3.10% 1.81% 1.81% 1.35% 1.26% 1.98% 0.90% 0.43% 5.48%
10 11 12 13 14 15 16
1 Equates to only 56% of our total payment volume. Book transfer rate is 44%
Book transfers
Book transfers are payments made between parties that maintain accounts
other kind of funds transfer because there is no external payment systems required.
J.P. Morgan probably has the largest correspondent networks in the world,
Clearing house administrative cost is eliminated. No usage of our Fed Daylight Overdraft Line. J.P. Morgan book transfer approximately 44% of our payment volume.
operating hours.
Payment/receipt processing operates 22 hrs/day, 6 days/week.
Clearing investigations available 24/7.
CHIPS closes
Fedwire settlement
Value date 1
RECENT DEVELOPMENTS IN USD CLEARING
Value date
9:00 p.m.
12:00 a.m.
4:30 p.m. 5:00 p.m. 5:30 p.m. 6:00 p.m. 6:30 p.m.
Remitting Bank
OUR $1,000
Correspondent
BEN/SHA $1,000
Beneficiary Bank
Beneficiary
$990
Beneficiary Deduct
BEN/SHA $1,000
BEN/SHA $980
$970
Full No Deduct
OUR $1,000
OUR $1,000
$1,000
BEN/OUR
BEN/SHA $1,000
OUR $980
J.P. Morgan
Processes
Bene Bank
Receives
Beneficiary
Credited
Message type: apply deductions to MT103 and/or MT202 transactions. Differentiated fee
words payment messages. For MT103 transactions, include BEN or SHA in field 71A. For MT202 transactions, include/Deduct/in field 72.
Transaction reference: apply deductions when our systems identify the presence of
unlimited pre-established reference patterns in payment messages. Clients can establish a customised fee schedule to their most sensitive clients and/or for unique transactions (e.g., trade payments), or suppress fees altogether (e.g., for inter-company payments).
J.P. Morgan
Processes
Bene Bank
Receives payment
Beneficiary
Credited
payment instruction sending full principal to beneficiary bank via book transfer, CHIPS or Fedwire
Processes claims
instruction with /OUR/ in field 71A and should credit beneficiary with full principal
Reimbursement
Enhanced operational efficiency Full no deduct enables clients to use same-day advising for their most sensitive
payments.
J.P. Morgan can pass beneficiary bank claims back to clients, or absorb fees, in
Credit
Instruction
Credit
Remitting Bank
Beneficiary Bank
Remitting Bank
Beneficiary Bank
MT103 Pre-Advice
With Autoconvert
USD
Remitting Bank
Remitting Bank
Convert USD to
local currency
MT103 to
currency
Credit beneficiary
RECENT DEVELOPMENTS IN USD CLEARING
Beneficiary Bank
Beneficiary Bank
SGD
Beneficiary
SGD
Beneficiary
Conversion takes place earlier in the payment chain. Rapid conversion into local currency. Patterns can determine when to convert. Generates revenue for remitting bank customer.
and MT195/MT295 amendment instructions to special BIC CHASUS33SDI, formatted according to SWIFT standards. These will be processed without operator intervention.
Reduces your exposure to counterparty risk.
Priority payments
Enables you to include either the codeword /PRIORITY/ in field 70 or 72 or one of an
unlimited number of pre-agreed patterns in one of the ten fields that J.P. Morgan scans for patterns to identify your urgent payments.
RECENT DEVELOPMENTS IN USD CLEARING
Timed payments
If you have a requirement to send payments that must be with the ultimate beneficiary
by a specific time, this process enables certain payments to be released by deadline specified by the sending bank.
Primarily aimed to serve large value inter-bank and/or government payments or to
credit to account.
The service can be customized to generate advices only upon location of
specific reference or text information and is available at the SWIFT branch level.
SWIFT statements
Intraday balance and transaction information is available hourly via MT942 and
RECENT DEVELOPMENTS IN USD CLEARING
end-of-day balance and transaction information is available via MT940 and MT950.
Statements are formatted according to SWIFT standards and contain all
repair.
End-of-day MT950s are the earliest available in the market to ensure that our
clients receive their account information as soon as possible in their business day.
Multiple statements can be transmitted to multiple SWIFT addresses.
US Dollar Clearing Solutions: Improving operational efficiency and reducing Risk with automated repair capabilities
How can I increase my STP rates? Over 97% of the transactions received by J.P. Morgan are processed straight-through our systems
Patented artificial intelligence repair capabilities automatically repair recurring
following operator repair of any of the significant fields of a payment, allowing future receipt of the same payment instruction with the same formatting error to be processed straight through: 30,000 patterns on file / 10,000 items automatically repaired each day
RECENT DEVELOPMENTS IN USD CLEARING
NARM (Name Auto Repair Maintenance) creates and stores repair patterns
following operator repair of any of the credit or reference fields of a payment, allowing future instructions with the same formatting error to be processed straight through
EASE (Enhanced Acronym Search and Execution) automatically converts
bank name and city to the appropriate CHIPS and Fed identifiers allowing payment instructions without these identifiers to be processed STP
Intermediary Bank Selection automatically selects a correspondent bank for
commercial payments less than $5,000,000 where the beneficiary bank can not be paid directly by J.P. Morgan and no intermediary bank is specified
Conclusion
In these challenging times, banks need a Global Payment Clearing Provider which offers:
Resiliency Liquidity Financial Stability Capital Adequacy
Questions
RECENT DEVELOPMENTS AND EMERGING BEST PRACTICE IN INTERNATIONAL CURRENCY CLEARING AND SETTLEMENT
David Tudor
Vice President, Product Specialist, Core Cash Management EMEA
STRICTLY PRIVATE AND CONFIDENTIAL
Introduction Various factors are converging to test banks viability in payment clearing: Regulatory compliance demands Globalization and current economic conditions Profitability dynamics
the cost of the response pricing implications
The world is getting smaller While certain currencies are dominant in global trade, their strength is being leveraged outside of home turf to grow local advantage, and new currency players are emerging.
Offshore clearing systems growing in relevance, particularly in Asia Alternative currencies seeking to establish toe-hold in settling regional/global trade RMB and Ruble are potential legitimate alternatives in the medium term. Net Settlement and Central Counterparty initiatives offer substitute solutions to
existing bi-lateral arrangements Corporations are diversifying product lines, requiring larger and more international supplier networks
Burgeoning migration to SWIFT: greater demand for fewer banks to support
migration, complicated by less sticky revenues and extensive client integration needs
Greater need for far-reaching, global solutions that dont fragment liquidity Population of niche providers increasing to fill capability gap at corporate treasury
level
Compliance Profitability
Globalization
improve serviceability
Consider greater use of principal deductions to drive additional revenue
Compliance
Profitability Globalization
regionally or globally.
Minimize the investments in constantly changing infrastructure
J.P. Morgans Global Footprint: local presence and currency clearing, worldwide.
High Value Clearing Over 40 major and minor currencies including US$, , , , SGD HKD, AUD,INR, RMB, RUB Over 4.000 correspondent banking relationships Foreign Exchange Over 135 currencies nearly every currency that supports trade
Low Value Clearing Access to over 44 local clearing systems for non urgent or mass payments Fully compliant SEPA solutions
Liquidity Solutions Pooling, sweeping, and concentration Overnight and short term Investments Risk management solutions
Trade Solutions 3 regional hubs 23 locations globally including 5 in China growing to 9 Local Trade experts deployed in local markets
Technology, operating and service platform that provides global consistency and resiliency
Best Practice
CLIENT
USD Provider
GBP Provider
EURO Provider
USD JPY
EURO
JPY
GBP
RMB
OTHER CURRENCIES
Different experience, capabilities, service levels Varied pricing Longer time to market when expanding
Local market expertise provides insight into local practices, rules, regulations and currency controls
Leverages premium client service model with support from in-country service teams Access to local clearing systems and a full suite of in-country payments and receivables services Earn better pricing by consolidating volumes across a group of currencies with J.P. Morgan as a single provider Global infrastructure for consistent processing across all currencies
TARGET2 indirect participation SEPA indirect participation, SCT and SDD Participate in other euro clearings (e.g. EBA TARGET2 addressable participant EBA EURO1 addressable participant Generate new revenues Control operational costs and increase efficiency MT103 serial service MT202COV & Advice alternative BEN-OUR service Principal preservation service (FND)
Europe Highlight: launch of Sterling Clearing and Offshore Russian Ruble Service
Sterling CHAPS direct clearer June 2010. Became cash settlement bank in CREST (UK and Irish securities) in 2009. Strengthens existing service and our commitment to the UK payments market. An important ingredient in Global Payments Provision. BACS and UK Faster Payments also supported for low value/non urgent payments. Russian Ruble clearing from an account with J.P. Morgan London. Provides clients with access to credit and liquidity. Solution insulates clients from the complexities of Ruble clearing. Offers early same day settlement.
RATIONALE
Development of UK Faster Payment Scheme and revision to internal resiliency assessment strategy. Reduced competition due to UK Bank Mergers. Demand for both Stg Clearing services & Russian Ruble services from large Corporates and Banks. Use of Ruble in trade transactions instead of US dollar. Our clients significant challenges in identifying a Ruble Clearing partner. RTGS system in Russia gaining momentum but still some way off.
Overseas
China
Approved Corporate
Corporate
MT103/MT202 incoming & outgoing MT900/910/940/950 statement Foreign exchange Credit interest management
products.
Global infrastructure and local expertise
receipts.
Comprehensive solution, including trade
basis.
It does not eliminate Mark to Market Risk. It results in intra day payment exposure between 3rd Party Members and their chosen
Settlement Bank.
In the case of an FX trade, both sides must be in CLS eligible currencies as listed below:
In the case of Non Deliverable Forwards, the settlement currency must be a
AUD
JPY
ZAR
CAD
CHF DKK EUR GBP HKD ILS
KRW
MXN NOK NZD SEK SGD USD
J.P. Morgan Chase does not currently offer a CLS service in KRW, but may do so in the future (subject to client demand)
trade
Process substantially increased volumes No need for additional headcount due to
improved STP
Complies with market best practice Reach Growth in membership now includes
Questions