GLOSSARY OF TERMS
RELATED TO
PAYMENT, CLEARING AND
SETTLEMENT SYSTEMS
27 November 2009
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Term Definition1
acceptance This term has two meanings.
1) In the field of transfer systems, it refers to the inclusion of a transfer order for
funds or securities in a system’s operations for further processing, potentially
following various checks (e.g. regarding technical standards or the availability
of funds), as specified in the rules of the system.
2) In the field of cards, it refers to the process whereby a particular brand of card
is accepted by a terminal, merchant or other entity.
acceptor A merchant or other entity that accepts a payment instrument presented by a client in
order to transfer funds to that merchant or other entity.
ACH See automated clearing house.
acquirer (card
acquirer)
In point-of-sale (POS) transactions, the entity (usually a credit institution) to which the
acceptor (usually a merchant) transmits the information necessary in order to process
the card payment.
In automated teller machine (ATM) transactions, the entity (usually a credit
institution) which makes banknotes available to the cardholder (whether directly or via
the use of third-party providers).
advisory netting See position netting.
agency
relationship
A contractual relationship whereby one party (the agent) acts on behalf of another (the
principal).
ancillary system A system in which payments or securities are exchanged and/or cleared. Meanwhile,
the ensuing monetary obligations are settled in another system, typically an RTGS
system.
See also real-time gross settlement (RTGS) system.
asset servicing Administration services provided by a central securities depository (CSD) or custodian
in connection with the custody and/or safekeeping of financial instruments (e.g. the
processing of corporate events or the handling of taxes).
ATM See automated teller machine.
authentication A security mechanism for verifying: 1) the identity of an individual or other entity
(including verification by means of a computer or computer application); and 2) the
level of authority of that person or entity (i.e. the ability of that person or entity to
perform specific tasks or activities).
authorisation The consent given by a participant (or a third party acting on behalf of that participant)
in order to transfer funds or securities.
auto-
collateralisation
A credit operation that is or can be triggered when a buyer does not have sufficient
funds to settle a securities transaction in order to improve its cash position for the next
settlement cycle. The credit provided can be secured using securities already held by
the buyer (“collateral stocks”) or the securities that are being purchased (“collateral
flows”).
automated
clearing house
(ACH)
An electronic clearing system in which payment orders are exchanged among
participants (primarily via electronic media) and handled by a data-processing centre.
See also clearing, clearing house.
1
These are definitions of terms as they are used by market participants, not legal definitions. The
objective is for the glossary to have a broad, general scope, rather than being system or infrastructurespecific.
The use of these terms and definitions may be subject to limitations on account of the diversity
of European infrastructure and legal systems.
Page 3 of 24
Term Definition1
automated
teller machine
(ATM)
An electromechanical device that allows authorised users, typically using machinereadable
plastic cards, to withdraw cash from their accounts and/or access other services
(allowing them, for example, to make balance enquiries, transfer funds or deposit money).
See also cash dispenser.
automatic
linking
A process whereby trading members may automatically link buy and sell trades by
marking the respective securities trades.
See also linked trade.
backup system A system designed to replace the primary system in the event of the primary system
being unable to function for whatever reason.
See also business continuity.
Bank Identifier
Code (BIC)
An International Organization for Standardization (ISO) technical code that uniquely
identifies a financial institution. SWIFT is the registration authority for BICs. A BIC
consists of eight or eleven characters, comprising a financial institution code (four
characters), a country code (two characters), a location code (two characters) and,
optionally, a branch code (three characters).
batch (bulk
payments)
A group of orders (payment orders and/or securities transfer orders) to be processed
together.
beneficiary A recipient of funds (payee) or securities. Depending on the context, a beneficiary can
be a direct participant in a payment system and/or a final recipient.
BIC See Bank Identifier Code.
bilateral
exposure
One party’s exposure to another party.
See also exposure.
bilateral net
settlement
system
A settlement system in which every individual bilateral combination of participants
settles its net settlement position on a bilateral basis.
See also net settlement system.
bilateral netting An arrangement whereby two parties net their bilateral obligations.
See also multilateral netting, netting, net settlement system.
bill of exchange A written order from one party (the drawer) to another (the drawee) instructing it to
pay a specified sum on demand or on a specified date to the drawer or a third party
specified by the drawer. These are widely used to finance trade and, when discounted
with a financial institution, to obtain credit.
blocking A process preventing the transfer of a specified amount of funds or a specified quantity
of a security.
book-entry
system
A system which enables transfers of securities and other financial assets which do not
involve the physical movement of paper documents or certificates (e.g. the electronic
transfer of securities).
See also dematerialisation, immobilisation.
book-entry
transaction
This term has two meanings.
1) In the field of securities, it refers to a transaction which is processed without
the movement of physical certificates, being effected instead by means of
credit and debit entries.
2) In the field of payments, it refers to a credit or debit entry made by a credit
institution on the account of a customer in accordance with a general
instruction issued by the customer (e.g. for a dividend payment or bank fees).
brand A particular payment product (especially a card) that has been licensed by its owner
for use in a given territory.
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Term Definition1
bulk payments See batch.
business
continuity
A state of uninterrupted business operations. This term also refers to all of the
organisational, technical and staffing measures employed in order to:
1) ensure the continuation of core business activities in the immediate aftermath of a
crisis; and 2) gradually ensure the continued operation of all business activities in the
event of sustained and severe disruption.
See also backup system.
cap (limit) A quantitative limit on the funds or securities transfer activity of a participant in a
system. Limits may be set by each individual participant or imposed by the entity
managing the system. Limits can be placed on system participants’ net debit and/or net
credit positions.
card (payment
card)
A device that can be used by its holder to pay for goods and services or to withdraw
money.
card acquirer See acquirer.
cardholder A person to whom a payment card is issued and who is authorised to use that card.
card issuer A financial institution that makes payment cards available to cardholders, authorises
transactions at point-of-sale (POS) terminals or automated teller machines (ATMs) and
guarantees payment to the acquirer for transactions that are in conformity with the
rules of the relevant scheme.
card scheme A technical and commercial arrangement set up to serve one or more brands of card
which provides the organisational, legal and operational framework necessary for the
functioning of the services marketed by those brands.
See also three-party card scheme, four-party card scheme.
card with a
cash function
A card enabling the cardholder to withdraw cash from a cash dispenser and/or deposit
cash. The cash function is usually combined with a payment function.
See also cash card.
card with a
credit function
See credit card.
card with a
debit function
See debit card.
cash card A card which has only a cash function.
See also card with a cash function.
cash dispenser An electromechanical device that permits authorised users to withdraw banknotes,
typically using machine-readable plastic cards.
See also automated teller machine.
cash settlement
agent
The entity whose assets or liabilities are used to settle the payment obligations arising
from funds transfer systems or from securities transfers within a central securities
depository (CSD). Commercial banks and central banks are typical cash settlement
agents.
CCBM See correspondent central banking model.
CCBM2 See Collateral Central Bank Management.
CCP See central counterparty.
central bank
money
Liabilities of a central bank, in the form of either banknotes or bank deposits held at a
central bank, which can be used for settlement purposes.
central
counterparty
An entity that interposes itself, in one or more markets, between the counterparties to
the contracts traded, becoming the buyer to every seller and the seller to every buyer
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Term Definition1
(CCP) and thereby guaranteeing the performance of open contracts.
central
counterparty
(CCP) link
An arrangement between two central counterparties (CCPs) that allows the provision
of central counterparty services for trades performed by the participants of those two
CCPs, without requiring those participants to become members of both CCPs.
central
securities
depository
(CSD)
An entity that: 1) enables securities transactions to be processed and settled by book
entry; 2) provides custodial services (e.g. the administration of corporate actions and
redemptions); and 3) plays an active role in ensuring the integrity of securities issues.
Securities can be held in a physical (but immobilised) form or in a dematerialised form
(whereby they exist only as electronic records).
chaining A method used in certain transfer systems for the processing of orders. This involves
altering the sequence in which transfer orders are processed in order to increase the
number or value of transfers that can be settled with the available funds and/or
securities balances (or the available credit or securities lending lines).
See also optimisation routine.
charge card See delayed debit card.
cheque A written order from one party (the drawer) to another (the drawee; normally a credit
institution) requiring the drawee to pay a specified sum on demand to the drawer or a
third party specified by the drawer.
chip card
(smart card)
A card with an embedded microprocessor (chip) loaded with the information necessary
to enable payment transactions.
clearing The process of transmitting, reconciling and, in some cases, confirming transfer orders
prior to settlement, potentially including the netting of orders and the establishment of
final positions for settlement. Sometimes this term is also used (imprecisely) to cover
settlement. For the clearing of futures and options, this term also refers to the daily
balancing of profits and losses and the daily calculation of collateral requirements.
See also settlement.
clearing fund A fund composed of assets contributed by participants in a central counterparty (CCP)
or by providers of guarantee arrangements that may be used to meet the obligations of
a defaulting CCP participant. In certain circumstances, it may also be used to settle
transactions and cover losses and liquidity pressures resulting from such defaults. A
clearing fund serves as insurance against unusual price movements not covered by the
margin calculation in the event of a member defaulting.
clearing house A common entity (or a common processing mechanism) through which participants
agree to exchange transfer instructions for funds, securities or other instruments. In
some cases, a clearing house may act as a central counterparty for those participants,
thereby taking on significant financial risks.
clearing
member
A member of a clearing house.
See also direct clearing member, general clearing member, non-clearing member.
clearing system A set of rules and procedures whereby financial institutions present and exchange data
and/or documents relating to transfers of funds or securities to other financial
institutions at a single location (e.g. a clearing house). These procedures often include
a mechanism for calculating participants’ mutual positions, potentially on a net basis,
with a view to facilitating the settlement of their obligations in a settlement system.
See also clearing, netting, clearing house.
close-out
netting
A special form of netting which follows certain contractually agreed events (such as
the opening of insolvency proceedings), whereby all existing obligations are
accelerated such that they become due immediately.
See also netting, default.
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Term Definition1
co-branding An arrangement whereby a product or service is associated with more than one brand.
collateral An asset or third-party commitment that is used by a collateral provider to secure an
obligation vis-à-vis a collateral taker.
See also pledge, collateral pool, repurchase agreement.
Collateral
Central Bank
Management
(CCBM2)
A common platform for Eurosystem collateral management, establishing efficient
collateral mobilisation and management procedures for both domestic and cross-border
collateral.
collateral
management
Collateral management includes the process used to control the correspondence
between the market value of the relevant collateral and the required value of that
collateral. It generally also includes the generation and processing of collateral
transfers.
collateral pool A collateralisation technique that enables an institution to make collateral available to
a counterparty without allocating it to a specific transaction.
Antonym: earmarking.
commercial
bank money
Commercial bank liabilities that take the form of deposits held at a commercial bank
which can be used for settlement purposes.
See also loro account, nostro account.
committed
facility
A facility (e.g. a credit line or a repo facility) whereby the provider is contractually
required to advance funds in specified circumstances.
See also collateral pool, loss-sharing agreement.
common
depository
An entity, usually a credit institution, that provides the two international central
securities depositories (ICSDs) with safekeeping and asset servicing for physical
papers (“global notes”) covering all or part of an issue of international debt
instruments (e.g. Eurobonds).
See also specialised depository.
confirmation
(trade
confirmation)
A process whereby the terms of a trade are verified either by directly involved market
participants or by a central entity.
contractual
settlement date
accounting
A contractual commitment by a custodian to credit and debit a customer’s cash and
securities accounts, as appropriate, on the date on which the customer’s contract with
its counterparty is due for settlement (i.e. the contractual settlement date), regardless of
whether settlement has actually occurred. Such crediting and debiting is normally
provisional and does not become final if settlement does not occur within a time period
established by the custodian.
Core Principles
for Systemically
Important
Payment
Systems
(CPSIPS)
International standards for systemically important payment systems developed by the
G10 central banks in order to guide the oversight activities of central banks with
regard to payment systems of systemic importance.
For details, see the report “Core Principles for Systemically Important Payment
Systems”, BIS, January 2001.
corporate
action
(corporate
event)
An action or event decided by the issuer of a security which has an impact on the
holders of that security. This may be optional, in which case those holders have a
choice (for example, they may have the right to purchase more shares, subject to
conditions specified by the issuer). Alternatively, it may be mandatory, whereby those
holders have no choice (e.g. in the case of a dividend payment or stock split).
Corporate actions can relate to cash payments (e.g. dividends or bonuses) or the
registration of rights (subscription rights, partial rights, splits, mergers, etc.).
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Term Definition1
corporate event See corporate action.
correspondent
banking
An arrangement whereby one bank (the settlement or service-providing bank) makes
or receives payments (potentially performing other banking services in addition) on
behalf of another bank (the customer or user bank).
See also loro account, nostro account, tiering arrangement.
correspondent
central banking
model (CCBM)
A mechanism established by the European System of Central Banks with the aim of
enabling counterparties to use eligible collateral in a cross-border context. In the
CCBM, national central banks act as custodians for one another. This means that each
national central bank has a securities account in its securities administration for each of
the other national central banks and the ECB.
counterparty
risk
The risk that between the time a transaction is agreed and the time it is actually settled,
the counterparty to that transaction will fail to fulfil its obligations.
CPSIPS See Core Principles for Systemically Important Payment Systems.
credit cap See credit limit.
credit card
(card with a
credit function)
A card that enables cardholders to make purchases and/or withdraw cash up to a
prearranged credit limit. The credit granted may be either settled in full by the end of a
specified period, or settled in part, with the balance taken as extended credit (on which
interest is usually charged).
credit
institution
A credit institution is a company duly authorised to carry out banking transactions on a
regular basis (i.e. to receive deposits from the public, carry out credit transactions,
make funds available and manage means of payment).
credit limit
(credit cap)
A limit on the credit exposure which a payment system participant incurs either vis-àvis
another participant (a “bilateral credit limit”) or vis-à-vis all other participants (a
“multilateral credit limit”) as a result of receiving payments which have not yet been
settled.
credit line A commitment, made in advance by a given entity, to grant credit on demand to
another entity subject to agreed terms.
credit risk The risk that a counterparty will not settle the full value of an obligation – neither
when it becomes due, nor at any time thereafter. Credit risk includes replacement cost
risk and principal risk. It also includes the risk of the settlement bank failing.
See also replacement cost risk, principal risk.
credit transfer A payment instrument allowing a payer to instruct the institution with which its
account is held to transfer funds to a beneficiary.
cross-border
payment
A payment where the financial institutions of the payer and the payee are located in
different countries.
cross-border
settlement
Settlement that takes place in a country (or currency area) in which one or both parties
to the transaction are not located.
Antonym: domestic settlement.
cross-currency
settlement risk
See foreign exchange settlement risk.
cross-
margining
agreement
An agreement between two central counterparties (CCPs) which makes it possible to
limit the margin requirements for institutions participating in both CCPs by regarding
the positions and collateral of such participants as one portfolio.
cross-system
settlement
The settlement of a payment or securities transaction through a link between two
separate payment systems or securities settlement systems.
CSD See central securities depository.
CSD link A set of technical and legal arrangements between two central securities depositories
Page 8 of 24
Term Definition1
(CSDs) for the cross-system transfer of securities.
See also investor CSD, issuer CSD, relayed link, direct link, indirect link.
custodian An entity, often a credit institution, which provides securities custody services to its
customers (cf. depository).
custody The holding and administration, by an entity entrusted with such tasks, of securities
and other financial instruments owned by a third party.
custody risk The risk of a loss being incurred on securities in custody as a result of a custodian’s
insolvency, negligence, misuse of assets, fraud, poor administration or inadequate
record-keeping.
cut-off time The deadline set by a system (or an agent bank) for the acceptance of transfer orders
for a given settlement cycle.
daily processing The complete cycle of processing tasks which need to be completed in a typical
business day, from start-of-day procedures to end-of-day procedures. This sometimes
includes the backing-up of data.
daylight credit See intraday credit.
debit card (card
with a debit
function)
A card enabling its holders to make purchases and/or withdraw cash and have these
transactions directly and immediately charged to their accounts, whether these are held
with the card issuer or not.
See also card, delayed debit card.
default An event stipulated in an agreement as constituting a default. Generally, such events
relate to a failure to complete a transfer of funds or securities in accordance with the
terms and rules of the system in question. A failure to pay or deliver on the due date, a
breach of agreement and the opening of insolvency proceedings all constitute such
events.
See also failed transaction.
“defaulter
pays”
A loss-sharing arrangement whereby each participant is required to collateralise any
exposures it creates for other participants. As a result, losses resulting from a party’s
default are borne by the defaulting party.
Antonym: “survivors pay”.
deferred net
settlement
system
A system which settles on a net basis at the end of a predefined settlement cycle
(typically at the end of – but sometimes during – the business day).
See also net settlement system.
delayed debit
card (charge
card)
A card enabling its holders to make purchases and/or withdraw cash and have these
transactions charged to an account held with the card issuer, up to an authorised limit.
The balance of this account is then settled in full at the end of a predefined period.
See also card.
delivery The transfer of financial instruments or commodities by means of book entry or
physical exchange.
delivery versus
delivery (DvD)
A securities settlement mechanism which links two securities transfers in such a way
as to ensure that the delivery of one security occurs if – and only if – the other security
in the other transfer is delivered.
delivery versus
payment (DvP)
A securities settlement mechanism which links a securities transfer and a funds
transfer in such a way as to ensure that delivery occurs if – and only if – the
corresponding payment occurs.
dematerialisatio
n
The elimination of physical certificates or documents of title indicating ownership of
financial assets, such that the financial assets exist only as accounting records.
deposit facility A standing facility of the Eurosystem which counterparties may use to make overnight
Page 9 of 24
Term Definition1
deposits at a national central bank. Such deposits are remunerated at a pre-specified
interest rate.
See also standing facility.
depository An agent with the primary role of recording (direct or indirect) holdings of securities.
A depository may also act as a registrar (cf. custodian).
derivative A financial contract whose value depends on the value of one or more underlying
reference assets, rates or indices, on a measure of economic value or on factual events.
designated
system
A system governed by the law of an EEA Member State and designated to the
European Commission by the competent national authorities in accordance with
Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on
settlement finality in payment and securities settlement systems.
digital
signature
See electronic signature.
direct clearing
member
A member of a clearing house that clears on its own behalf and on behalf of its
customers.
See also clearing member, general clearing member, non-clearing member.
direct debit A payment instrument for the debiting of a payer’s payment account whereby a
payment transaction is initiated by the payee on the basis of authorisation given by the
payer.
direct holding
system
An arrangement for registering ownership of securities (or similar interests) whereby
each and every final investor in the security is registered with a single entity (e.g. the
issuer itself, a central securities depository (CSD) or a registry). In some countries, the
use of direct holding systems is required by law.
Antonym: indirect holding system.
direct link An account opened by a central securities depository (CSD), referred to as the
“investor CSD”, in the books of another CSD, referred to as the “issuer CSD”, in order
to facilitate the transfer of securities from participants in the issuer CSD to participants
in the investor CSD.
See also investor CSD, operated direct link, relayed link.
Antonym: indirect link.
direct
participant
A participant in a transfer system that can perform all activities allowed in the system
without using an intermediary (including, in particular, the direct inputting of orders in
the system and the performance of settlement operations).
Antonym: indirect participant.
domestic
settlement
Settlement which takes place in the country (or currency area) in which both parties to
the transaction are located.
Antonym: cross-border settlement.
double-entry
bookkeeping
An accounting principle whereby for each credit/debit entry made in one account,
there is a corresponding entry in another account.
DvD See delivery versus delivery.
DvP See delivery versus payment.
earmarking A technique for identifying collateral whereby assets provided as collateral are
attributed to individual transactions.
Antonym: collateral pool.
EBPP See Electronic Bill Presentment and Payment.
EDI See electronic data interchange.
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Term Definition1
EFTPOS
terminal
A terminal which captures payment information by electronic means and transmits
such information either online or offline. “EFTPOS” stands for “electronic funds
transfer at point of sale”.
See also point-of-sale (POS) terminal.
Electronic Bill
Presentment
and Payment
(EBPP;
electronic
invoicing)
Services which enable the electronic transmission, browsing and payment of invoices.
electronic data
interchange
(EDI)
The exchange between commercial entities (in some cases also public
administrations), in a standardised electronic format, of data relating to a number of
message categories, such as orders, invoices, customs documents, remittance advices
and payments. EDI messages are sent through public data transmission networks or
banking system channels. Any movement of funds initiated by EDI is reflected in
payment instructions flowing through the banking system. UN/CEFACT, a United
Nations body, has established a set of standards relating to electronic data interchange
for administration, commerce and transport (EDIFACT).
electronic
invoicing
See Electronic Bill Presentment and Payment.
electronic
money
A monetary value, represented by a claim on the issuer, which is:
1) stored on an electronic device (e.g. a card or computer);
2) issued upon receipt of funds in an amount not less in value than the monetary value
received; and
3) accepted as a means of payment by undertakings other than the issuer.
electronic
money
institution
(ELMI)
A term used in EU legislation to designate credit institutions which are governed by a
simplified regulatory regime because their activity is limited to the issuance of
electronic money and the provision of financial and non-financial services closely
related to the issuance of electronic money.
electronic purse See multi-purpose prepaid card.
electronic
signature
(digital
signature)
A string of data, generated by a cryptographic method, which is attached to an
electronic message in order to guarantee its authenticity, identify the signatory and link
the content to that signatory (thereby protecting the recipient against repudiation by the
sender).
eligible assets
(eligible
collateral)
Assets which can be used as collateral in order to obtain credit from the Eurosystem.
eligible
collateral
See eligible assets.
ELMI See electronic money institution.
EMV An acronym describing the set of specifications developed by the consortium EMVCo,
which is promoting the global standardisation of electronic financial transactions – in
particular the global interoperability of chip cards. “EMV” stands for “Europay,
MasterCard and Visa”.
exchange-forvalue
settlement
system
A general term referring to systems which simultaneously exchange the two assets
involved in a foreign exchange transaction or a securities transaction.
See also delivery versus delivery, delivery versus payment, payment versus payment.
exit criteria Criteria determining whether an existing participant in a system should cease
participation or not. The participant’s exit may be voluntary, or it may be compulsory
Page 11 of 24
Term Definition1
(e.g. following the opening of insolvency proceedings).
exposure The loss that would be incurred if a certain risk materialised.
See also bilateral exposure.
face-to-face
payment
A payment where the payer and the payee are in the same physical location.
Antonym: remote payment.
fail See failed transaction.
failed
transaction
(fail)
A transaction that does not settle on the contractual settlement date. Such a transaction
may be retained and may settle thereafter.
final investor The ultimate recipient of rights in securities held on a securities account
(e.g. ownership rights, voting rights or dividends).
final settlement
(final transfer)
A settlement or transfer is final when it is unconditional, enforceable and irrevocable,
even in the framework of insolvency proceedings opened against a participant (except
in the case of criminal offences or fraudulent acts, as determined by a competent
court). In the European context, a distinction is made between:
1) the enforceability of a transfer order which is binding on third parties and protected
from insolvency risks, provided that the transfer order was entered in the relevant
system, in accordance with the rules of that system, prior to the opening of insolvency
proceedings (with transfer orders entered in a system following the opening of
insolvency proceedings being legally enforceable only in exceptional circumstances);
and
2) the irrevocability of a transfer order which cannot be revoked by the participants as
of the point in time laid down in the rules of that system.
A distinction should be made between the finality of the transfer order and the finality
of the transfer, which indicates the moment at which entitlement to the asset in
question (be it cash or securities) is legally transferred to the receiving entity.
final transfer See final settlement.
foreign
exchange
settlement risk
(cross-currency
settlement risk)
The risk that a party to a foreign exchange transaction will transfer the currency it has
sold, but not receive the currency it has bought. This is a form of principal risk.
See also principal risk, payment versus payment.
four-party card
scheme
A card scheme where the stakeholders involved are: 1) the issuer; 2) the acquirer; 3)
the cardholder; and 4) the card acceptor. (In the case of automated teller machine
(ATM) transactions, it is usually the acquirer that offers its services via the ATM.) By
contrast, in a three-party card scheme, the issuer and the acquirer are always the same
entity.
See also card scheme, three-party card scheme.
free-of-payment
(FOP) delivery
A delivery of securities which is not linked to a corresponding transfer of funds.
FTS See funds transfer system.
funds transfer
system (FTS)
A formal arrangement based on a private contract or legislation, with multiple
membership, common rules and standardised arrangements, for the transmission,
clearing, netting and/or settlement of monetary obligations arising between its
members.
See also interbank funds transfer system, payment system.
fungibility A characteristic of securities which are substitutable on account of their being
identical.
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Term Definition1
general clearing
member
A member of a clearing house that clears on its own behalf, on behalf of its customers
and on behalf of other market participants.
See also clearing member, direct clearing member, non-clearing member.
global
certificate
A single physical certificate that covers all or part of an issue of securities.
See also global note.
global
custodian
A custodian that provides its customers with custody services in respect of securities
traded and settled in several countries around the world.
global note The term used when a global certificate relates to fixed income instruments
(e.g. bonds).
See also global certificate.
governance Procedures through which the objectives of a legal entity are set, the means of
achieving them are identified and the performance of the entity is measured. This
refers, in particular, to the set of relationships between the entity’s owners, board of
directors, management, users and regulators, as well as other stakeholders that
influence these outcomes.
gridlock A situation that can arise in a funds or securities transfer system in which a failure to
execute one or more transfer orders prevents the execution of a substantial number of
orders submitted by other participants.
See also queuing, systemic risk.
gross margining A mechanism whereby the margin that a participant posts in a central counterparty
(CCP) for its customers’ positions is the sum of the requirements for individual
customers.
gross settlement The settlement of transfer orders one by one.
See also net settlement.
gross settlement
system
A transfer system in which transfer orders are settled one by one.
See also net settlement system, real-time gross settlement (RTGS) system.
guarantee fund A fund which compensates non-defaulting participants for losses which they suffer in
the event that one or more participants default on their obligations.
See also clearing fund, collateral pool.
haircut A risk control measure applied to underlying assets whereby the value of those
underlying assets is calculated as the market value of the assets reduced by a certain
percentage (the “haircut”). Haircuts are applied by a collateral taker in order to protect
itself from losses resulting from declines in the market value of a security in the event
that it needs to liquidate that collateral.
home banking Banking services which retail customers of credit institutions can access using various
kinds of telecommunication device (e.g. telephones, mobile phones, television sets,
terminals or personal computers).
hybrid system A system that combines the characteristics of RTGS systems (e.g. the continuous
processing and clearing of transfer orders) and net settlement systems (the operation of
several settlement cycles per day, some form of netting procedure for transfer
orders, etc.).
See also net settlement system, real-time gross settlement (RTGS) system.
IBAN See International Bank Account Number.
ICSD See international central securities depository.
IFTS See interbank funds transfer system.
immobilisation The placement of physical certificates for securities and financial instruments in a
Page 13 of 24
Term Definition1
common depository or a central securities depository so that subsequent transfers can
be made by book entry (i.e. by debiting and crediting holders’ accounts at the
depository).
indirect holding
system
A multi-tiered arrangement for the custody and transfer of ownership of securities (or
the transfer of similar interests therein) in which investors are identified only at the
level of their custodian.
Antonym: direct holding system.
indirect link A link between two central securities depositories (CSDs) through a non-CSD
intermediary.
See also relayed link.
Antonym: direct link.
indirect
participant
A participant in a funds or securities transfer system with a tiering arrangement that
uses a direct participant as an intermediary in order to perform some of the activities
allowed in the system (particularly settlement).
See also tiering arrangement.
Antonym: direct participant.
initial margin For instruments cleared by a central counterparty (CCP), the amount of collateral that
each participant is required to provide to the CCP (or the clearing member) in order to
cover potential losses in the event of that participant defaulting. The initial margin is
calculated on the basis of a formula set by the CCP.
See also haircut, margin.
integrity In the context of data, the quality of being protected against accidental or fraudulent
alteration in transmission or in storage. Alternatively, the quality of indicating whether
or not such alteration has occurred.
integrity of a
securities issue
The result of legal requirements and securities accounting procedures ensuring that the
number of securities issued is, at all times, equal to the total number of securities in
circulation (i.e. validly booked in investors’ accounts).
interbank funds
transfer system
(IFTS)
A funds transfer system in which all (or almost all) participants are credit institutions.
interchange fee A transaction fee payable between the payment service providers involved in a
transaction.
internal
settlement
Settlement that is effected through transfers of securities and/or funds on the books of
a bank or investment firm, as opposed to settlement via an interbank funds transfer
system or a central securities depository (CSD).
International
Bank Account
Number
(IBAN)
An International Organization for Standardization (ISO) technical code that is an
expanded version of the basic bank account number (BBAN). Intended for use
internationally, the IBAN uniquely identifies an individual account at a specific
financial institution in a particular country. The IBAN also includes the bank identifier
of the financial institution servicing that account.
international
central
securities
depository
(ICSD)
A central securities depository (CSD) which was originally set up to settle Eurobond
trades and is now active also in the settlement of internationally traded securities from
various domestic markets, typically across currency areas.
At present, there are two ICSDs located in EU countries: Clearstream Banking in
Luxembourg and Euroclear Bank in Belgium.
interoperability The set of arrangements/procedures that allows participants in different systems to
conduct and settle payments or securities transactions across systems while continuing
to operate only in their own respective systems.
Page 14 of 24
Term Definition1
intraday credit
(daylight credit)
Credit extended and reimbursed within a single business day.
intraday
finality
Final settlement achieved continuously or at various times in the course of the
settlement day. Intraday finality can be provided through real-time settlement
procedures and/or the settlement of the results of batch processing during the
settlement day.
intraday
liquidity
Funds which are available or can be borrowed during the business day in order to
enable financial institutions to effect payments/settlement. Repayment of the funds
borrowed should take place before the end of the business day.
See also intraday credit, same-day funds.
investment firm Any entity whose regular occupation or business is the provision of one or more
investment services to third parties and/or the performance of one or more investment
activities on a professional basis.
investor CSD A term used in the context of central securities depository (CSD) links. An investor
CSD – or a third party acting on behalf of the investor CSD – opens an account in
another CSD (the issuer CSD) so as to enable the cross-system settlement of securities
transactions.
See also CSD link, central securities depository, issuer CSD.
issuer CSD
(issuing CSD)
A central securities depository (CSD) in which securities are issued (or immobilised).
The issuer CSD opens accounts allowing investors (in a direct holding system) and/or
intermediaries (including investor CSDs) to hold these securities.
See also direct link, investor CSD, relayed link, direct holding system, indirect holding
system.
issuing CSD See issuer CSD.
Lamfalussy
standards
(minimum
standards of the
Lamfalussy
report)
The six minimum standards for the design and operation of cross-border and multicurrency
netting schemes or systems. For details, see the “Report of the Committee on
Interbank Netting Schemes of the Central Banks of the Group of Ten Countries” (the
“Lamfalussy report”), BIS, November 1990.
See also Core Principles for Systemically Important Payment Systems.
large-value
funds transfer
system
(wholesale
funds transfer
system)
A funds transfer system through which large-value and/or high-priority funds transfers
are made between participants in the system for their own account or on behalf of their
customers. Although, as a rule, no minimum value is set for payments made in such
systems, the average size of such payments is usually relatively large.
large-value
payment
Large-value payments are generally for very large amounts, are exchanged mainly
between banks or between participants in financial markets, and usually require urgent
and timely settlement.
Antonym: retail payment.
L/C See letter of credit.
legal risk The risk of a loss being incurred on account of the unexpected application of a law or
regulation, or because a contract cannot be enforced.
letter of credit
(L/C)
An irrevocable commitment by a bank (the issuing bank) or other issuer made at the
request of a customer (the applicant third party) to pay a specified sum of money to a
third party upon request, subject to terms and conditions drawn up in accordance with
uniform customs and practices.
limit See cap.
Page 15 of 24
Term Definition1
linked trade A trade where securities are released for delivery only if they become available from
another trade.
liquidity risk The risk that a counterparty will not settle an obligation in full when it becomes due.
Liquidity risk does not imply that a counterparty or participant is insolvent, since it
may be able to effect the required settlement at some unspecified time thereafter.
loro account
(vostro account)
In correspondent banking, an account held by one bank on behalf of another bank (the
“customer bank”); the customer bank regards this account as its “nostro account”.
Antonym: nostro account.
loss-sharing
agreement
An agreement among participants in a clearing or settlement system regarding the
allocation of any losses arising from the default of either a participant in the system or
the system itself.
See also loss-sharing rule.
loss-sharing
rule
The rule or formula stipulating the way in which losses arising from the default of
either a participant in the system or the system itself are to be shared among the
various parties in the event that a loss-sharing agreement is activated.
See also loss-sharing agreement.
mandate for
direct debits
The authorisation given by a payer to a payee (and/or the institution with which the
payer’s account is held) consenting to the debiting of the payer’s account.
See also direct debit.
margin Highly liquid collateral required in order to cover adverse market price movements.
The initial margin is calculated on the basis of a formula set by the counterparties to a
trade or by a central counterparty (CCP). A market participant is called upon to
provide additional collateral if the collateral that has been deposited is no longer
sufficient (with this “margin call” indicating a shortfall in the margin coverage).
marginal
lending facility
A standing facility of the Eurosystem which counterparties may use to receive
overnight credit from a national central bank at a pre-specified interest rate against
eligible assets.
See also standing facility.
market
infrastructure
Systems used for the trading, clearing and settlement of payments, securities or
derivatives.
market risk
(price risk)
The risk of losses (in both on and off-balance sheet positions) arising from movements
in market prices.
See also replacement cost risk.
marking to
market
The practice of revaluing securities and financial instruments using current market
prices.
See also haircut, variation margin.
matching The process used for comparing the trade or settlement details provided by parties in
order to ensure that they agree on the terms of the transaction.
means of
payment
Assets or claims on assets that are accepted by a payee as discharging a payment
obligation on the part of a payer vis-à-vis the payee.
See also payment instrument.
member A participant in a system which also owns a stake in that system.
merchant
service charge
(MSC)
A fee paid by the acceptor/merchant to the acquirer.
minimum The minimum amount of reserves that a credit institution is required to hold with the
Page 16 of 24
Term Definition1
reserves Eurosystem.
minimum
standards of the
Lamfalussy
report
See Lamfalussy standards.
mobile payment
(m-payment)
A payment where a mobile device (e.g. a phone or personal digital assistant (PDA)) is
used at least for the initiation of the payment order and potentially also for the transfer
of funds.
money order An instrument used to transfer money remotely, often used where the payer and/or the
payee do not have a current account with a financial institution.
money remitter A payment service provider that accepts funds from a payer for the purpose of making
them available to a payee, without necessarily maintaining an account relationship
with the payer or payee.
m-payment See mobile payment.
MSC See merchant service charge.
multilateral net
settlement
system
A settlement system in which each settling participant settles its own multilateral net
settlement position (typically by means of a single payment or receipt).
See also multilateral netting, net settlement system.
multilateral
netting
An arrangement among three or more parties for the netting of obligations and the
settling of multilateral net settlement positions.
See also bilateral netting, netting.
multi-purpose
prepaid card
(electronic
purse)
A prepaid card which can be used at the outlets of several service providers for a wide
range of purposes.
See also prepaid card.
net credit cap A limit placed on the credit exposure which a participant is allowed – or willing – to
take on vis-à-vis all other participants or a given participant in the system as a result of
sending/receiving payments which have not been settled.
See also cap.
net margining A mechanism whereby the margin that a participant posts in a central counterparty
(CCP) for its customers’ positions is the net total of the requirements for the individual
customers.
See also gross margining.
net settlement The settlement of transfer orders on a net basis.
See also gross settlement.
net settlement
system
A funds or securities transfer system which settles net settlement positions during one
or more discrete periods, usually at pre-specified times in the course of the business
day.
See also gross settlement system.
netting In the context of clearing or settlement systems, the agreed offsetting of mutual
obligations by participants in a system. This process involves the calculation of net
settlement positions and their legal reduction to a (bilateral or multilateral) net amount.
Netting may take several legal forms.
See also bilateral netting, multilateral netting, position netting, netting by novation,
unwind.
Page 17 of 24
Term Definition1
netting by
novation
An agreement whereby obligations derived from individual transfer orders are neeted
and replaced by a new obligation. The parties to the new obligation may be the same
as the parties to the existing obligation. Alternatively, in the context of some clearing
house arrangements, there may be some substitution of parties.
Antonym: position netting.
nominee A person or entity named by another to act on its behalf. Nominees are commonly
used in securities transactions to register and obtain legal ownership of securities.
non-clearing
member
A member of a regulated market that uses a general clearing member to access a
clearing house’s services. All trades must be settled through a clearing member.
See also clearing member, direct clearing member, general clearing member.
non-
repudiation
Mechanisms providing evidence of: 1) the identity of the sender of a payment
message; and 2) the integrity of that message. These are sufficient to prevent the
sender of a message from successfully denying the submission of the payment
message or the integrity of its contents.
nostro account In correspondent banking, an account held by a customer bank on the books of another
bank acting as a service provider. The other bank regards this account as a “loro
account”.
Antonym: loro account.
offline card
transaction
A card transaction which is authorised without contacting the issuer at the time of the
transaction.
Antonym: online card transaction.
online card
transaction
A card transaction which is authorised following explicit approval by the issuer at the
time of the transaction.
Antonym: offline card transaction.
operated direct
link
A direct link between two central securities depositories (CSDs) where a third party,
typically a custodian bank, operates the account in the issuer CSD on behalf of the
investor CSD.
See also direct link.
operational risk The risk that deficiencies in information systems or internal controls, human error or
management failures will result in unexpected losses. This relates to both internal and
external events.
optimisation
routine
A procedure determining the order in which transfer orders are to be processed and
settled in a transfer system in order to increase settlement efficiency.
See also queue management, chaining.
OTC (over-the-
counter)
trading
A method of trading that does not involve a regulated market. In over-the-counter
markets, participants trade directly with each other, typically through telephone or
computer links.
oversight The oversight of payment systems is a typical central bank function whereby the
objectives of safety and efficiency are promoted by monitoring existing and planned
systems, assessing them against the applicable standards and principles whenever
possible and, where necessary, fostering change.
Oversight activities increasingly relate also to securities clearing and settlement
systems.
pan-European
automated
clearing house
(PE-ACH)
A business platform for the processing of euro payment instruments which is made up
of governance rules and payment practices and supported by the necessary technical
platform(s).
Page 18 of 24
Term Definition1
participant An entity which is identified/recognised by a transfer system and – either directly or
indirectly – is allowed to send transfer orders to that system and is capable of receiving
transfer orders from it.
See also direct participant, indirect participant, remote participant.
payer The party to a payment transaction which issues the payment order or agrees to the
transfer of funds to the payee.
payment In a strict sense, a payment is a transfer of funds which discharges an obligation on the
part of a payer vis-à-vis a payee. However, in a technical or statistical sense, it is often
used as a synonym for “transfer order”.
See also transfer order.
payment card See card.
payment
instrument
A tool or a set of procedures enabling the transfer of funds from a payer to a payee.
The payer and the payee can be one and the same person.
See also means of payment.
payment lag See settlement lag.
payment order An instruction sent by a payer or a payee to a payment service provider requesting the
execution of a payment transaction.
payment
scheme
A set of interbank rules, practices and standards necessary for the functioning of
payment services.
See also card scheme.
payment system This term has two meanings.
1) In some cases, it refers to the set of instruments, banking procedures and
interbank funds transfer systems which facilitate the circulation of money in a
country or currency area.
2) In most cases, it is used as a synonym for “funds transfer system”.
See also funds transfer system.
payment versus
payment (PvP)
A mechanism which ensures that the final transfer of a payment in one currency occurs
if – and only if – the final transfer of a payment in another currency or currencies takes
place.
See also exchange-for-value settlement system.
PE-ACH See pan-European automated clearing house.
personal
identification
number (PIN)
A personal and confidential numerical code which the user of a payment instrument
may need to use in order to verify his/her identity. In electronic transactions, this is
seen as the equivalent of a signature.
See also electronic signature.
physical
delivery
Settlement of a derivatives transaction through the delivery of the underlying asset in
exchange for payment.
PIN See personal identification number.
pledge The delivery of assets in order to secure the performance of an obligation by one party
(the debtor) vis-à-vis another (the secured party). For the secured party, a pledge
creates a security interest (a “lien”) in the assets delivered, while ownership of the
assets remains with the debtor.
point-of-sale
(POS) terminal
A device allowing the use of payment cards at a physical (not virtual) point of sale.
The payment information is captured either manually on paper vouchers or by
electronic means.
See also EFTPOS terminal.
Page 19 of 24
Term Definition1
position netting
(advisory
netting)
Netting of orders in respect of obligations between two or more parties which neither
satisfies nor discharges those original individual obligations. Also referred to as
“payment netting” in the case of payment orders.
Antonym: netting by novation.
postal order Money order in which the drawee is a postal institution.
prenotification In the field of direct debits, the advance notification provided by the creditor to the
debtor as regards: 1) the amount of the next direct debit; and 2) the date of collection.
prepaid card A card on which a monetary value can be loaded in advance and stored either on the
card itself or on a dedicated account on a computer. Those funds can then be used by
the holder to make purchases.
See also multi-purpose prepaid card.
price risk See market risk.
primary site The place where systems operators locate the infrastructure and/or staff necessary to
run their normal daily business operations.
principal An entity that acts on its own behalf, with its own funds and at its own risk.
principal risk The risk that the seller of a financial asset (e.g. securities or currency) will deliver, but
not receive payment, or the risk that the buyer will pay, but not receive delivery. In
such a situation, the full value of the securities or funds transferred is at risk.
See also delivery versus payment, payment versus payment.
processing The performance of all of the actions required in accordance with the rules of a system
for the handling of a transfer order from the point of acceptance by the system to the
point of discharge from the system. Processing may include clearing, sorting, netting,
matching and/or settlement.
provisional
settlement
The discharging of an obligation by means of a transfer of funds and/or a transfer of
securities which is dependent on the fulfilment of certain conditions and can therefore
be rescinded by one or more parties.
See also settlement.
Antonym: final settlement.
provisional
transfer
A transfer order is provisional as long as it can be revoked by the originator or as long
as it can be reversed subject to certain conditions.
Antonym: final settlement.
PvP See payment versus payment.
queue
management
Rules and procedures that determine the order in which transfer orders are released
from the queue and processed – e.g. “first in, first out” (FIFO). Optimisation routines
may or may not be used.
See also queuing, optimisation routine.
queuing An arrangement whereby transfer orders are held in a queue by the sending participant
or by the system until they can be processed in accordance with the rules of the
system. In an RTGS system, payments are typically “queued” because of a lack of
funds or insufficient access to intraday credit. In netting systems, payments are
“queued” in order to prevent caps from being exceeded.
See also cap, real-time gross settlement (RTGS) system.
reachability A credit institution is “reachable” if it can execute a credit transfer order and/or a
direct debit instruction sent by any other bank in a particular currency area.
realignment The transfer of assets from the account of one investor central securities depository
(CSD) to the account of another investor CSD, both of which are held with the issuer
Page 20 of 24
Term Definition1
CSD, in order to reflect the transfer of assets between participants in those investor
CSDs.
See also investor CSD, issuer CSD.
real-time gross
settlement
(RTGS) system
A settlement system in which processing and settlement take place on a transactionby-transaction
basis in real time.
reconciliation A procedure to verify that two sets of records issued by two different entities match.
refund In the field of direct debits, a claim made by a debtor for the reimbursement of debits
effected from its account (with or without a specific reason being indicated by that
debtor).
refusal In the field of direct debits, an instruction issued by a debtor prior to settlement, for
whatever reason, to the effect that the debtor bank should not make a direct debit
payment.
registrar See registry.
registration The documenting of the ownership of securities in the records of the issuer, in a
registry or in a central securities depository (CSD).
registry
(registrar)
An entity that records the ownership of securities on behalf of the issuer.
reject In the field of payments, a payment transaction whose normal execution is prevented
by the payment service provider of either the payer or the payee prior to settlement.
relayed link A contractual and technical arrangement that allows issuer and investor central
securities depositories (issuer and investor CSDs) to hold and transfer securities
through an account with a third CSD (a “middle CSD”), which acts as an intermediary.
remote access Direct access by an institution established in one country to a system (e.g. a payment
system, a securities settlement system or a central counterparty (CCP)) established in
another country.
remote
participant
A participant in a system which operates from a country other than that in which the
system in question is located.
remote
payment
A payment made from a distance, without the payer and payee being present at the
same physical location.
Antonym: face-to-face payment.
replacement
cost risk
The risk that, owing to a party to a transaction failing to meet its obligation on the
settlement date, its counterparty may have to replace the original transaction at current
market prices (“replacement cost”).
See also market risk.
repurchase
agreement
The process of borrowing money by combining the sale of an asset (usually a fixed
income security) with the subsequent repurchase of that same asset for a slightly
higher price (which reflects the borrowing rate).
retailer card A card issued by a merchant for use at specified merchant outlets.
retail funds
transfer system
A funds transfer system which typically handles a large volume of payments of
relatively low value in forms such as cheques, credit transfers and direct debits.
retail payment A non-time-critical payment of relatively low value. These payments are typically
made outside of the financial markets and are both initiated by and made to individuals
and non-financial institutions.
Antonym: large-value payment.
returns Funds sent back by the payee to the payer following settlement of the original payment
instruction. The term “return” is used in connection with both direct debits and credit
Page 21 of 24
Term Definition1
transfers.
RTGS system See real-time gross settlement (RTGS) system.
safekeeping
services
The holding of physical securities on behalf of other parties.
same-day funds Funds which the recipient is entitled to transfer or withdraw from an account on the
day of receipt.
See also intraday liquidity.
scheduling Technique for managing payment queues by determining the order in which payments
are accepted for settlement.
See also queuing.
secondary site A location other than the primary site which systems can use to resume their business
operations and other functions in the event of a disaster.
securities
settlement
system (SSS)
A system which allows the transfer of securities, either free of payment (FOP) or
against payment (delivery versus payment).
segregation A method of protecting a client’s assets by holding them separately from those of the
custodian (or other clients, as the case may be).
SEPA See Single Euro Payments Area.
settlement The completion of a transaction or of processing with the aim of discharging
participants’ obligations through the transfer of funds and/or securities. A settlement
may be final or provisional.
See also final settlement, provisional settlement, gross settlement, net settlement.
settlement
account
An account held at a central bank or a central securities depository, or with a central
counterparty or any other institution acting as a settlement agent, which is used to
settle transactions between participants in a system.
settlement
agent
(settlement
institution)
The institution across whose books transfers between participants take place in order
to achieve settlement within a settlement system.
See also bilateral net settlement system, multilateral net settlement system, settling
participant.
settlement asset An asset or a claim on an asset that is accepted by a beneficiary in order to discharge a
payment obligation.
settlement bank See settling participant.
settlement cycle
(settlement
interval)
In the field of securities, the time period that elapses between the trade date and the
settlement date.
settlement date See settlement day.
settlement day
(settlement
date)
The day on which settlement actually takes place.
settlement
failure
The inability of a participant to meet its settlement obligations in a system. This
inability may be temporary or permanent.
See also failed transaction, default.
settlement
institution
See settlement agent.
settlement See settlement cycle.
Page 22 of 24
Term Definition1
interval
settlement lag
(payment lag)
In a transfer system, the time lag between the acceptance of the transfer order by the
system and its final settlement. In an exchange-for-value system, the time lag between
entering into a trade/bargain and finally exchanging the financial asset for payment.
settlement
obligation
The requirement, as a result of the settlement process, that a participant in a settlement
system effect payment or deliver assets.
settlement risk The risk that settlement in a transfer system will not take place as expected, usually
owing to a party defaulting on one or more settlement obligations. This risk includes,
in particular, operational risks, credit risks and liquidity risks.
settlement
system
A system used to facilitate the settlement of transfers of funds, assets or financial
instruments.
See also funds transfer system, securities settlement system.
settling member See settling participant.
settling
participant
(settlement
bank; settling
member)
A participant which maintains one or more accounts with a settlement agent in order to
settle funds or securities transfers on its own behalf or, potentially, for other market
participants.
See also tiering arrangement, settlement agent.
Single Euro
Payments Area
(SEPA)
A process initiated by European banks and supported, inter alia, by the Eurosystem
and the European Commission with a view to integrating retail payment systems and
transforming the euro area into a true domestic market for the payment industry.
smart card See chip card.
specialised
depository
An entity, usually a credit institution, that provides international central securities
depositories (ICSDs) with safekeeping and asset servicing for physical certificates
(“individual notes”) that represent shares in international debt instruments
(e.g. Eurobonds).
See also common depository.
SSS See securities settlement system.
standing facility A central bank credit facility available to counterparties at their own initiative. The
Eurosystem offers two overnight standing facilities: the marginal lending facility and
the deposit facility.
standing order An instruction from a customer to its bank to make a regular payment of a fixed
amount to a named beneficiary.
STP See straight-through processing.
straight-
through
processing
(STP)
The automated end-to-end processing of trades/payment transfers – including, where
relevant, the automated completion of confirmation, matching, generation, clearing
and settlement of orders.
substitution of
securities
A situation in which an institution which has provided securities as collateral recalls
them and replaces them with other securities of equivalent market value.
“survivors pay” A loss-sharing arrangement which, in the event of a participant’s inability to settle,
requires losses to be borne by the other (non-defaulting) participants in accordance
with a predetermined formula.
Antonym: “defaulter pays”.
systemically
important
payment system
A payment system which has the potential to trigger systemic risks in the event of it
being insufficiently protected against the risks to which it is exposed.
Page 23 of 24
Term Definition1
systemic risk The risk that the inability of one participant to meet its obligations in a system will
cause other participants to be unable to meet their obligations when they become due,
potentially with spillover effects (e.g. significant liquidity or credit problems)
threatening the stability of or confidence in the financial system. That inability to meet
obligations can be caused by operational or financial problems.
T2S See TARGET2-Securities.
TARGET2 The real-time gross settlement system for the euro. TARGET2 settles payments in euro
in central bank money and functions on the basis of a single IT platform, to which all
payment orders are submitted for processing. This means that all payments are
received in the same technical form. TARGET2 is legally structured as a multiplicity
of RTGS systems (TARGET2 component systems).
TARGET2Securities
(T2S)
The Eurosystem’s single technical platform enabling central securities depositories
(CSDs) and national central banks to provide core, borderless and neutral securities
settlement services in central bank money in Europe. T2S is scheduled to go live in
2013.
three-party
card scheme
A card scheme involving the following stakeholders: 1) the card scheme itself, which
acts as issuer and acquirer; 2) the cardholder; and 3) the accepting party. This contrasts
with a four-party card scheme, where the issuer and the acquirer are separate entities
and are separate from the card scheme itself.
See also card scheme, four-party card scheme.
tiering
arrangement
An arrangement whereby indirect participants in a system require the services of direct
participants in order to carry out their transactions.
See also indirect participant, settling participant.
trade
confirmation
See confirmation.
transaction
reference
number (TRN)
A unique reference number used to identify individual payment or securities settlement
instructions (e.g. SWIFT payment messages or credit card authorisations).
transfer order An order or message requesting the transfer of assets (e.g. funds, securities, other
financial instruments or commodities) from the debtor to the creditor.
See also payment.
transfer system A set of legal, technical and procedural arrangements for the transfer of assets such as
money or securities.
tri-party repo Repurchase agreement in which a third party (e.g. a custodian bank, a clearing house
or a central securities depository (CSD)) is responsible for the management of the
collateral during the life of the transaction.
TRN See transaction reference number.
truncation A procedure in which a paper-based transfer order or other financial instrument is
replaced, in whole or in part, by an electronic record of the content of that instrument
for the purposes of further processing and transmission.
underlying
asset
The asset (i.e. the financial instrument or security) upon which a derivatives contract is
based.
unwind The process used to recalculate obligations in some net settlement systems where
transfers between the accounts of participants are provisional until all of them have
finally discharged their settlement obligations. If a particular participant fails to settle,
some or all of the provisional transfers involving that participant are deleted from the
system and the settlement obligations of the remaining participants are recalculated.
See also zero-hour rule.
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Term Definition1
value date The date on which it is agreed to place a payment or transfer at the disposal of the
receiving user. The value date is also used as a point of reference for the calculation of
interest on the funds held on an account.
variation
margin
Profits and losses calculated on a daily basis in open futures contracts and options,
resulting in the counterparty to the bilateral trade making a payment to the relevant
clearing house or vice versa.
vostro account See loro account.
wholesale funds
transfer system
See large-value funds transfer system.
zero-hour rule A provision in the insolvency law of some countries whereby the transactions
conducted by an insolvent institution after midnight on the date the institution is
declared insolvent are automatically ineffective by operation of law.
See also unwind.