De Nederlandsche Bank

TARGET2 Richard Derksen Conference Financial Sector of Macedonia on Payments and Securities Settlement Systems

Ohrid 24 June 2008

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Contents

 TARGET  Scope and framework TARGET2  Single Shared Platform  Project planning  Migration De Nederlandsche Bank Eurosysteem

TARGET

 TARGET  Trans-European  Automated  Real-time  Gross settlement  Express  Transfer system De Nederlandsche Bank Eurosysteem

The ESCB payment system

European Central Bank Interlinking De Nederlandsche Bank Eurosysteem

TARGET1

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

ECB

ILC

NCB

ILC ILC

NCB TARGET Interlinking Network

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

• • • • Expensive Inflexible Different pricing Different products / • services Different standards ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

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From TARGET to TARGET2

Bank A

Swift Net Services

Bank B

Interlinking via FIN NCBs Ancillary systems

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TARGET2 platform

NL

One central platform for NCBs for the real time gross settlement of large value payments The central TARGET2 platform, called Single Shared Platfom (SSP), is built by 3 NCB ´s (3CB): Bundesbank, Banque de France and Banca d ´Italia The platform offers some mandatory and some optional modules.

Operational per 19 November 2007 (group 1) De Nederlandsche Bank Eurosysteem

TARGET2 in Europe

TARGET2

Countries on TARGET2 ---- of which € Other EU-countries De Nederlandsche Bank Eurosysteem

TARGET2

TARGET2 offers:  High availability  Uniform pricing  Uniform functionality  Harmonisation  Advanced tools for liquidity management  Ready for new countries

NL

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TARGET2: Operations

 All RTGS operations may be processed in TARGET2    individual operations settled in real-time and in central bank money no exclusion according to amount or type of operations Wholesale payments are a main goal for TARGET2  All types of operations    credit transfers direct debits (limited usage) mandated payments  All types of business    payments between market participants central bank operations settlement operations of ancillary systems De Nederlandsche Bank Eurosysteem

TARGET2 operational day

18:45 19:30 22:00 01:00 06:45 07:00 17:00

Calendar day (d-1) TARGET business day (d) Calendar day (d)

18:00 18:45

business day (d+1)

1 2 3 4 3 5 6 7 8 1 9 De Nederlandsche Bank Eurosysteem

TARGET2 operational day

Purpose of the different phases:        Start-of-day (1 & 2) Night-time processing (3) Technical maintenance window (4) Preparation for day trade phase (5) Day trade phase I (6) Day trade phase II (7) End-of-day (8 & 9) De Nederlandsche Bank Eurosysteem

Payment interface - FIN Copy -

Bank A

SSP country

MT 011 MT 012 MT 103(+) / 202/204 MT 019

SWIFTNet FIN

MT 103(+) / 202 / 204 Bank B

SSP country

mandatory either / or optional Participant Interface (Y-copy) PM Booking instruction Acknowledgement Payment Processing De Nederlandsche Bank Eurosysteem

Single Shared Platform

Centralized solution: single platform, no interlinking   central payments processing: DE, IT (workload distribution between regions) central datawarehouse and customer services: FR Region 1 SITE A SITE B Region 2 SITE C SITE D payments and accounting services Region 3 SITE E SITE F customer related services De Nederlandsche Bank Eurosysteem

Single Shared Platform

REGION 1

Live

Periodic Region Rotation

Test & Training (T&T)

REGION 2 SITE A

Synchronous remote copy

P

Asynchronous remote copy

P

Hot back-up

SITE B S S SITE C

Synchronous remote copy

SITE D

Hot back-up

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Ancillary systems settlement

For integrated model: liquidity transfer

SSS Securities accounts

For interfaced model: real-time settlement

SSS Securities accounts RTGS Other NCB Cash settlement accounts NCB environ ment RTGS NCB environ ment De Nederlandsche Bank Eurosysteem

Stakeholders TARGET2

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Migration groups

 Group composition aimed at minimising project risk, reducing effect on level playing field and limiting the costs for central banks and users  Data migration: 19 November 2007, 18 February 2008, 19 May 2008

Group 1

Austria Cyprus Germany Latvia Lithuania Luxembourg Malta Slovenia

Group 2

Belgium Finland France Ireland

Netherlands

Portugal Spain

Group 3

Denmark Estonia ECB Greece Italy Poland

Group 4

Reserved for contingency

Not needed De Nederlandsche Bank Eurosysteem

Migration DNB

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 Big Bang!

 No fall-back, as current systems will be terminated   Extensive testing (June 2007 until January 2008) Importance of providing information to Clearing members, Ancillary systems, DNB itself and all the customers     Website Meetings (involvement SWIFT) Monitoring of progress Involvement CIearing members in drafting test scenarios   but some changes before or after TARGET2 migration: change of AS settlement model terminating of domestic payment products De Nederlandsche Bank Eurosysteem

TARGET2 user testing Objective

Check readiness from business, operational and procedural viewpoints

Implementation

Usage of a separate user test environment Several testing phases with different purposes Connectivity testing Inter operability testing

User Testing

Country testing Business Day testing

Change over Go live

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Pricing

 Objectives: cost recovery, competitiveness and broad access  Pricing of transactions: pricing scheme with a monthly fee (100 euro or 1.250 euro) plus transaction fee of between EUR 0.125 and 0.80

 Optional services (e.g. liquidity pooling and services related to ancillary systems) are priced separately De Nederlandsche Bank Eurosysteem

NL

Summing up

 TARGET2 is a sort of 3 rd wave of Euro  Impact for national markets is big, but provides them (and foreign banks) directly with all benefits of a technically centralized platform ( legally it is a decentralized system)  One pot of liquidity, one window for info on all TARGET payments  Migration will be challenging and require a lot of testing and hard work De Nederlandsche Bank Eurosysteem

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Liquidity pooling - Virtual account

Credit institution e.g.

Bank A1 Credit institution e.g.

Bank A2 Credit institution Bank A3 Group account   virtual balance : balance on (single) accounts + credit lines possibility to „use“ this position by each group account holder   booking on the single accounts (not on the virtual account) only intra day: „levelling“ off at the end of day mandatory De Nederlandsche Bank Eurosysteem