CLEARIT The Swiss professional journal for payment traffic Edition 41 | September 2009

> Industrial revolution for providers Interview with Ulrich Hoffmann, UBS

> „Swiss-made“ direct debits for Europe

> ISO effects on the Swiss payment traffic 2 CONTENT / CLEARIT | September 2009

Interview Seite 4 standards. Specifically, it is a network of 161 standardiza- Industrial revolution for financial tion organizations around the world, which is coordinated services providers through its Central Secretariat, located in Geneva. The ISO What became part of everyday life a long time ago for the 20022 Standard, in particular, is continually gaining impor- manufacturing industry is now becoming more important tance for the international payment traffic in general, and for in the financial sector: The industrialization of processes. the Swiss payment traffic in particular. It aims to create more value along the processing path, increase efficiency, and effectively monitor operational Standardization Seite 11 risks. Ulrich Hoffmann, Global Head of Payments & Cross , keeper of the currency codes Product Services, UBS, explains how the industrialization After an open invitation to submission, SIX Interbank of financial services affects his . Clearing was chosen by the international ISO community to be responsible for the keeping of all currency codes Business & Partners Seite 7 worldwide, starting in June – an active contribution by the Industrialization in chip card production Swiss financial market to the standardization processes of The manufacturing process and volume totals of chip cards the international finance industry. for remain nearly unchanged over the past years. At the same time, there is an ever-increasing variety and Facts & Figures Seite 12 the demands on quality are going up. The resulting cost The SIC system and pressure in card production leads to even more efficient the financial market crisis automation processes. At its height in September 2008, the financial market crisis threatened to bring the worldwide financial systems to their Products & Services Seite 8 knees. Risk premiums jumped to record heights in record SEPA Direct Debit Service of SIX Group time and in all important currencies. The insecurities trans- SIX Group launched „Swiss-made“ direct debits for the ferred across many markets. Yet in spite of the tremendous European market in cooperation with the SECB Swiss Euro challenges, the interbank payment system for Swiss francs Clearing Bank end of June. The offer is aimed at financial kept operating remarkably stable. institutions in Switzerland and 31 other countries within the Single Euro Payments Area (SEPA) that would like to offer Event Seite 14 their customers the option of collecting standardized euro 10 years of repo through direct debits throughout Europe. The first Swiss and foreign the Swiss Value Chain institutions have already confirmed their participation. The Swiss franc repo business has been processed through the integrated financial market infrastructure Swiss Value Standardization Seite 10 Chain since 1999; reason enough to celebrate, but also ISO effects on the Swiss payment traffic to look ahead. On July 2nd, the ISO (International Organization for Standardization) is the organized a special conference by invitation at the Hotel largest worldwide organization that develops international Schweizerhof in Lucerne.

Photo front cover: Repo conference at the Hotel Schweizerhof in Lucerne, July 2, 2009 (article: see page 14) EditorialEDITORI / CLEARAL /IT CL | EARSeptemberIT 1 | 20092009 3

Dear readers, The Swiss market is small and largely saturated, including Another milestone toward internationalization is the par- the payment traffic area. Thus, a Swiss provider of payment ticipation of the first financial institution outside of traffic services, whose growth in earnings is dependent on Switzerland in SIX Group’s SEPA Direct Debit Service. This an increase in number of transactions, has no choice: service, launched across Europe in June, allows financial Further growth is only possible abroad. Add to that the fact institutions to completely outsource the processing of SEPA that all of Europe is in a state of flux. A case in point is the direct debits, thus being able to simply, quickly, and cost- pricing pressure resulting in part from the planned SEPA efficiently provide euro direct debits for their customers, standardization of payment processing. without costly adaptation of their own payment traffic in- frastructure. The contract is due to be signed in September. SIX Group will benefit from the opening and liberalization of the European payment traffic markets – not only because This international growth will justify the significant invest- it possesses an internationally competitive, highly stand- ments in the infrastructure. This growth allows these ardized infrastructure; not only, because it offers its clients high-quality services to be offered to customers outside an outstanding price-performance ratio; not only because our national borders. The resulting economies of scale will of its core competence (high system availability, data also benefit customers in Switzerland. < security, and comprehensive risk management that is second to none); but also because SIX Group is a joint Felix Aeschlimann venture of the Swiss financial center. This means that the CEO Division Cards & Payments, SIX Group owners of SIX Group and the users of SIX Group services have the same interests: By bundling services at SIX Group, they want to achieve economies of scale that, on the one hand, improve the cost situation, and on the other hand, enable them to focus on the core business.

The payment traffic business will systematically increase the volume of international business over the next years and strengthen SIX Group’s competitiveness, thereby ben- efiting the Swiss financial center, its owners, and its users. Last year’s participation in the Cetrel company of Luxem- bourg, for instance, yielded an annual increase of 60 million transactions running through the system. The in- sourcing of the Austrian payment service provider PayLife’s transactions will almost double the 1.5 billion transactions processed today. 4 Interview / CLEARIT | September 2009

Industrial revolution for financial services providers What became part of everyday life a long time ago for the manufacturing industry is now becoming more important in the financial sector: The industrialization of processes. It aims to create more value along the processing path, increase efficiency, and effectively monitor operational risks. Ulrich Hoffmann, Global Head of Payments & Cross Product Services, UBS, explains how the industrialization of financial services affects his bank.

ClearIT: Mr. Hoffmann, the industrial world has long cases. Furthermore, it is important to determine which ago shown us what can be improved through uniform services are to be provided centrally, and which ones and standardized processes. Why did it take so long for locally. Operations must be guaranteed at any time, 24/7. the financial services providers to start looking into this? This presumes zero tolerance for errors, with rigorous error Ulrich Hoffmann: I think there are four main reasons why management, as well as proven and tested business con- the industrialization of banks just started a few years ago. tinuity planning. First off, until recently, financial services providers have posted good protis. This, as we all know, has recently changed dramatically, due to the finance market crisis, „Our business processes need to be thereby increasing cost pressures. Second, globalization shaped by an understanding of the entire of the business results in financial services providers being active in various locations, prompting them to standard- process, front-to-back, and divided into ize as well as to consolidate their processes. Third, the individual processing steps.“ processing chains are increasingly divided into indivi- dual processing steps, and companies that specialize in outsourcing and off-shoring at cost efficient prices are entering the market. And, finally, new ways of doing things Speaking of zero error tolerance: Isn’t that associated in automated processing and capacity management are with significant internal costs? resulting from innovative, efficient technologies. Without a doubt, it is crucial in a cost-benefit analysis to determine how much the processing standard can You are saying that, with an eye towards globalization of and should be differentiated. In this situation, it isn’t just the banking business, processes should be standardized customer needs that play a major role; the various stake- and consolidated. What exactly do you mean by that? holder concerns must be taken into serious consideration, In my opinion, bank products need to be based on as well. This applies equally to supervisory authorities, utility services and built in global factories in standard- staff, investors, and the general public. In order to make ized, modularized components for payments, securities, well-balanced resource decisions and achieve efficiency foreign currencies, and other core service areas. These gains, we need to have an accurate understanding of our basic services should be supplemented for individual cost basis, in particular, to differentiate between fixed and customer segments and adapted to their respective needs variable components and to have transparency about how for specific added value. costs are generated and invoiced.

But how can the needs of individual customers be met in And then, as you mentioned in the beginning, the pro- global factories? cess chains need to be analyzed. The design of production processes and the dimensioning That’s correct. Our business processes need to be shaped of factory processes need to accommodate the business by an understanding of the entire process, front-to-back, and infrastructural conditions and the specific require- and divided into individual processing steps. To that end, ments of the target group equally. Thus we need both specialized competence centers can be formed and pro- fully automated processes for mass production as well cesses can be outsourced or off-shore providers used. as manual or semi-manual batch production for special What’s important is that service offers are built up Interview / CLEARIT | September 2009 5 6 Interview / CLEARIT | September 2009

Short biography has successfully embarked on that path with our “Bank for Banks” approach.

Ulrich Hoffmann is Managing Director and Global Head Are all banking areas affected equally by these industrial of Payments & Cross Product Services at UBS. He holds factors? a degree in economics from the University of Munich. I’m assuming that these challenges apply to all areas of the banking business with different characteristics for the in- Ulrich started his career with Bayerische Landesbank dividual factors by area. where he held various positions in the Internation- al Department. In 1987, he joined former Swiss Bank What will this industrialization bring about in the world Corporation in Frankfurt and worked in business devel- of banking? opment and client servicing functions for Capital Markets Most certainly, there is increased consideration about & . After two years, he moved to focusing on certain service areas and systematically Switzerland and became Head of Product Management executing basic processes with partners, whether through for Correspondent Banking. In 1994, he was appointed joint solutions or by using service providers. The big banks Head of Global Service Products, comprising wholesale have been intensively looking at these trends and increas- transactional banking services of payments and cash ingly, smaller institutions are facing the same issues in management, securities custody and trade finance. their respective market environments.

After the merger between the two former organisations What has UBS already accomplished, and which steps SBC and UBS, Ulrich established and further developed are next? the global business sector Payments & Cross Product We have been systematically dealing with these topics Services within Operations and assumed various man- for several years, and have implemented the above-men- agement roles in Payments, Cash Management, Cash tioned Global Utility Services concept for payment and Accounting, Output Management, Reconciliations, messaging traffic, cash management, and securities Messaging as well as Wholesale E-Banking and Cash processing company-wide. The cores of these areas are Solutions. now built, and we are in the process of analyzing further operational areas; for instance, data management, account and deposit reconciliation, and processing of securities systematically and reduced to the essentials. As I said, we and derivates. < need standardized solutions with modular elements. Interview: André Gsponer, Enterprise Services AG „The regulatory and market-related pres- [email protected] sures on traditional income sources calls for a fundamental change in thinking and new strategies for the pricing of bank services.“

How does this development impact the pricing of bank services? The regulatory and market-related pressures on traditional Example of a payment traffic income sources calls for a fundamental change in thinking and new strategies for the pricing of bank services, whereby outsourcing solution not only just the unit numbers, but also the value amount, the risk potential, and the cost structure of the financial The cooperation between UBS and PostFinance in transactions need to be taken into consideration. processing UBS’ standardized non-electronic payment traffic has been running successfully and productively since And is it possible to create new and additional business 2005. PostFinance processes all standardized payment opportunities that way? orders using paper records, from entering the order at By all means. Whether existing infrastructures and process- the PostFinance Operations Center to the transfer of the ing capacities can be made available in terms of in-sourcing fully recorded and verified order data and digital record or white labeling, and subsequently marketed with dedicated to UBS for management and booking. In 2008 there were sales units or on the basis of a joint venture to banks and approximately 22 million records. other third party customers, needs to be determined. UBS BUSINESS & PARTNERS / CLEARIT | September 2009 7

When physical and digital worlds melt together: Industrialization in chip card production

The manufacturing process and volume totals of chip cards for banks remain nearly unchanged over the past years. At the same time, there is an ever-increasing variety and the demands on quality are going up. The resulting cost pressure in card production leads to even more efficient automation processes.

Trüb AG Switzerland is noticing this trend of increasing and • Use of highly specialized control software and com- new challenges in manufacturing and servicing processes. prehensive master data that can be used for card They are one of the leading international providers of chip personalization and mailings, cards and card provider services for banks and • Modular production concepts with corresponding issuers. process architecture, and • The use of increasingly efficient chip card technology, Rising technical requirements and smaller batch sizes during which the final applications are uploaded at the The number of cards issued that target specific groups last moment. < and that are augmented with specific marketing messages for banks, credit card companies, co-branders, or affinity Stephan Breitenmoser, Sales Director Switzerland, Trüb AG partners has jumped to new heights over the past few [email protected] years. At the same time, various new chip components with contact and/or contact-less interfaces have appeared on the market. The multiplicity of combinable elements – such as card type, chip model, personalization or add-ons – has literally exploded, while the volume remained almost unchanged. Additionally, customers expect shorter and shorter delivery times. Processing these orders is getting increasingly complex, with physical and logistical security demands by VISA/MasterCard rising in parallel: Products, infrastructure and data flow must meet the highest security demands.

Dynamic tension: Quality – error quota – efficiency – security – speed Over the past years, the basic production process has largely remained unchanged. The demand is for error-free, secure production with delivery times in line with existing market conditions. Cost pressure has to be addressed through higher efficiency by standardization and automa- tion throughout the entire process. One important focal point is ever-decreasing batch sizes where, for all intents and purposes, the smallest common denominator deter- mines production variables.

The key to success lies in considerable investments in sophisticated logistics and disposition; systematic, sus- tainable enterprise knowledge management; and leading edge infrastructure with corresponding machinery. Addi- tional room for improvement can be found in: Secure laser personalization of bank cards 8 PRODUCTS & SERVICES / CLEARIT | September 2009

SEPA Direct Debit Service of SIX Group

SIX Group launched „Swiss-made“ direct debits for the European market in co- operation with the SECB Swiss Euro Clearing Bank end of June. The offer is aimed at financial institutions in Switzerland and 31 other countries within the Single Euro Payments Area (SEPA) that would like to offer their customers the option of collecting standardized euro direct debits throughout Europe. The first Swiss and foreign institutions have already confirmed their participation.

The new joint service package was developed by SIX the online platform supports the following functionalities: Interbank Clearing and SIX Paynet together with the SECB editing collections, submitting transactions, showing, on behalf of the Swiss financial center and with the partici- approving, deleting, printing and exporting of orders. pation of Swiss financial institutions. The service provides financial institutions of all sizes the option of outsourcing The Internet-based service is engineered in such a flexible the entire processing of SEPA direct debits. SIX Group and way that it can be easily adapted to the bank’s increasing the SECB provide the technical requirements for the rule- automation needs and transaction volumes. Thus, each confirming processing of SEPA direct debits throughout bank chooses for itself the level of investment in manual Europe. This means that institutions throughout the SEPA effort or the adaptation of its payment applications. < zone can introduce euro direct debits for their customers without having to make expensive adaptations to their Gabriel Juri, SIX Interbank Clearing internal payment traffic infrastructure. [email protected]

Simple, fast and inexpensively Financial institutions of all sizes can easily and rapidly introduce SEPA direct debits for their customers: An Internet connection is all that is needed in order to be reachable from throughout the SEPA zone. The SECB and SIX Group provide a complete offer that ensures that creditors and debtors can profit from the new direct debit scheme. The complete offer at a glance The offer is attractive because the financial institution need not bother with XML conversions, with receiving collections • An e-banking solution for creditors from creditors nor with a connection to a SEPA-compatible • A solution for the creditor’s bank clearing and settlement mechanism (CSM). This also means • A solution for the debtor’s bank that there is no need to make investments in the institu- • Connection to CSM/PE-ACH tion’s e-banking application. • Financial settlement of all transactions

Six financial institutions in Switzerland have recently submitted the necessary documents for participating in the Further information SEPA Core Direct Debit Scheme through SIX Group’s SEPA Direct Debit Service. The contract with the first foreign bank and participation process is due to be signed in September. All required documents for banks are available at www. Web Applications – the online hub for banks six-interbank-clearing.com/SEPA-Direct-Debit-Service. SIX Interbank Clearing‘s new Web Application module A glossary listing over 50 technical terms with their enables creditor banks as well as debtor banks to match definitions in English, French and German facilitates their internal processes to the SEPA Direct Debit Scheme understanding of the world of SEPA direct debits. without adapting their own payment applications. Presently, PRODUCTS & SERVICES / CLEARIT | September 2009 9

Example of a list of collections in the Web Application module for the debtor bank featuring various filtering options.

Detailed direct debit order in the Web Application module for the creditor bank. 10 STANDARDIZATION / CLEARIT | September 2009

ISO effects on the Swiss payment traffic

ISO (International Organization for Standardization) is the largest worldwide organization that develops international standards. Specifically, it is a network of 161 standardization organizations around the world, which is coordinated through its Central Secretariat, located in Geneva. The ISO 20022 Standard, in particular, is continually gaining importance for the international payment traffic in general, and for the Swiss payment traffic in particular.

The list of approximately 17,500 international standards Based on the above definitions, among others, XML includes everything from standards for hexagonal bolts to messages for the finance industry are developed for the cosmetics to music, as well as more abstract items, such securities trade, foreign trade financing, the Treasury and as quality management systems. the payment traffic area (http://www.iso20022.org/UNIFI_ payments_messages.page). These definitions also play a Uniform language for the finance industry worldwide crucial role, since these messages are both implemented From the finance industry’s perspective, the ISO 20022 by SWIFT and prescribed by the EPC (European Payments standard is very interesting. It is described in the “ISO 20022 Council) to be used in the new SEPA schemes for credit Financial Services – Universal financial industry message transfers and direct debits. Thus, the XML messages are scheme” document and is comprised of these five parts: mandatory both in interbank and in customer applications.

• ISO 20022-1: Overall methodology and format speci- Implementation in Switzerland fications for inputs to and outputs from the ISO 20022 In addition to the Swiss representation in the internation- Repository al ISO and EPC committees, the working group “20022 • ISO 20022-2: Roles and responsibilities of the registration payments CH” (formerly UNIFI-CH) was founded by PaCoS bodies (Payments Committee Switzerland). This working group • ISO/TS 20022-3: Technical Specification – ISO 20022 is comprised of Swiss finance industry representatives modeling guidelines (see box) and adapts the definitions for the application of • ISO/TS 20022-4: Technical Specification – ISO 20022 payment traffic-relevant messages. Furthermore, addition- XML design rules al individual topics are discussed within the framework of • ISO/TS 20022-5: Technical Specification – ISO 20022 regular information meetings with German and Austrian reverse engineering finance industry representatives in order to explore potential synergies among the three German-speaking countries. This results in corresponding regulations and definitions for the Swiss Finance Market, which are developed in co- operation with the SCFS (Swiss Commission for Financial Standardisation, see www.iso-payments.ch). Following is a list of the specific documents:

• Business Rules [Area Payments, Direct Debit, Cash Man- agement (in process)] • Implementation Guidelines SEPA Direct Debit (published) • Implementation Guidelines 20022 Payments CH (in process) • Implementation Guidelines 20022 Cash Management CH (planned)

SIX Interbank Clearing significantly supports these efforts Both cartoons by Pascal Krieger, reproduced with permission. (www.iso.org). during the development phase, and will also do so after STANDARDIZATION / CLEARIT | September 2009 1111

they are fed into the services of the Swiss joint venture for SEPA credit transfers and SEPA direct debits. < Switzerland, keeper of

Members of the 20022 Payments CH and Implementation the currency codes Guidelines working group

20022 Implementation After an open invitation to submission, SIX Interbank Payments CH Guidelines Clearing was chosen by the international ISO

community to be responsible for the keeping of all DTA/ Cash EZAG Mgt. currency codes worldwide, starting in June – an active contribution by the Swiss financial market to Bolliger Dieter X X X the standardization processes of the international Desponds Michel PostFinance X X X finance industry. Khouzam Marianne UBS X X X Kolly Jérôme PostFinance X X Miehling Carsten RECON IT X X The 7,000-citizen Caribbean island Saint Barthélemy, one of Molinari Nadia ZKB X X X France’s autonomous overseas collectivities, was recently Teglas Istvan SIX X X accepted into the International Organization for Stand- Interbank Clearing ardization’s (ISO) currency list with the euro as its official Imboden Silvio ZKB X currency. The coordination of this acceptance in May 2009 Stäheli Robin PostFinance X Del Carlo Reto UBS X was the last official act of the British Standards Institution Rebmann Frank UBS X (BSI) Currency Office in its eight-year history. As of the Veyhelmann Tim UBS X beginning of June 2009, SIX Interbank Clearing is solely Hegewald Matthias ZKB X responsible as the central maintenance agency of the ISO Nigg Adrian Credit Suisse X standard 4217 for the management of all currency codes. Schmidberger Frank UBS X Schütz Rolf PostFinance X Studer Andreas PostFinance X Sutter Paul SIX X Interbank Clearing Weber Ernst RCH X Zumsteg Rolf RECON IT X Locher Roman SIX X Interbank Clearing

Istvan Teglas, SIX Interbank Clearing [email protected]

The transfer of this responsibility took place at the request of the Swiss National Bank and the Swiss Commission for Financial Standardisation (SCSF) on behalf of the ISO member Swiss Association for Standardization (SNV). Norm ISO 4217 For its Currency Office customers – internationally active financial institutions as well as financial providers – SIX The Currency Office responsibilities are specified in the Interbank Clearing set up the www.currency-iso.org standard ISO 4217 and are available at www.iso.org. website. It includes a subscription for regular updates Generally, they include processing of requests for new, about currency code changes, enabling customers to changed, or withdrawn currencies, permit coordination adapt their corresponding data banks in a timely fashion with national banks, the World Bank and ISO, plus publish- – a service increasingly gaining in importance due to ing changes and updates. The currency codes are based ongoing globalization. < on the UN regulations for country codes; that is, on the standard ISO 3166. Gabriel Juri, SIX Interbank Clearing [email protected] 12 FACTS & FIGURES / CLEARIT | September 2009

The SIC system and the financial market crisis

At its height in September 2008, the financial market crisis threatened to bring the worldwide financial systems to their knees. Risk premiums jumped to record heights in record time and in all important currencies. The insecurities transferred across many markets. Yet in spite of the tremendous challenges, the interbank payment system for Swiss francs kept operating remarkably stable.

Payment systems are central installations to meet monetary Chart 1: Number of payments – Daily averages and peak values claims and liabilities between participants, with banks playing a essential role. It’s conceivable, then, that the 5'000'000 loss of trust among banks would leave visible marks on 4'500'000 payment processing, as well. But as illustrated below, in spite of the financial market crisis, developments in the 4'000'000 Swiss interbank payment system SIC were noteworthy for 3'500'000 their remarkable stability, some crisis-specific characteris- 3'000'000 tics notwithstanding. SIC’s final settlement of payments, 2'500'000 as well as the cash side of securities processing within the 2'000'000 Swiss Value Chain, based on the delivery versus payment 1'500'000 principle, are its significant trust-building characteristics. 1'000'000 Continued trend towards more and bigger payments 500'000 Til April 2009, SIC processed on a daily average basis 0 around 1.5 million payments valued at CHF 256 billion 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (charts 1 and 2); in 2000, there were still three times fewer payments, with a total amount of approximately Peak values Trend peak values CHF 170 billion. The number of payments follows an in- Daily averages Trend daily averages creasing, long-term trend, breaking international records during regular times, too. This is because the SIC system, when compared to similar foreign payment systems, Chart 2: Payment volume - Daily averages and peak values processes not only high-value payments, but also bulk payments. Since 2006, the trend has been toward slightly 450'000 higher processed payment volumes, as it also was in the 400'000 immediate past. That means the financial market crisis and the recessive economic developments did not in any 350'000 way lead to either fewer payments or to lower values per 300'000 payment as of today. If, instead of the monthly averages, 250'000 the daily peak values are examined, it shows that the 200'000 demands on SIC were even higher than usual. On several 150'000 days, the number of processed payments reached the 4 100'000 million margin, and the payment volumes reached peak values of more than CHF 300 billion – all the more reason 50'000 to guarantee reliability and stability in payment process- 0 ing at any given time. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Peak values (in CHF) Trend peak values Daily averages (in CHF) Trend daily averages FACTS & FIGURES / CLEARIT | September 2009 13

Consistent parameters Increased sight deposit supplies make processing The balance among participants and most important pa- easier rameters in SIC remained the same during the financial During the crisis, the high level of sight deposits brought crisis. Case in point: Approximately 60 percent of all SIC about not more but less payments, which were delayed payments continue to be submitted by only five banks. The for processing. If a payment due exceeds the amount on five banks with the highest payments by turnover make the debtor bank’s settlement account, the payment order up almost 40%; the top 20 financial institutions already is placed in a wait queue. The daily average of payments make up more than 80% of the payment volume in a pool in the wait queue decreased from approximately 50,000 in of approximately 360 SIC participants. The composition 2006 to 17,000 thus far in 2009. This represents a decrease of the group of banks traditionally accounting for a high from 0.04% to 0.01% of all payments processed by the number of payments and the group of institutions with SIC system. very large payments has remained unchanged for several years, with the two groups not overlapping except for the Foreign banks and SNB with increased payment two major banks. A large number of low-amount payments volumes are submitted by the cantonal banks and Raiffeisen. The The seemingly stable transaction trends shouldn’t lead Swiss National Bank (SNB), on the other hand, processes the observer to ignore certain shifts between participants. comparatively few payments within its monetary policy Thus, during the crisis, banks that traditionally processed operations with repos, but those are high-value payments. few payments executed payments with exceptionally high amounts. When we look at banks in terms of number of transactions processed, those outside the top 50 almost doubled their share of the SIC turnover by increasing it to Chart 3: Sight deposits (in millions) approximately 20%, while the share of the top five banks decreased by ten percent, to 40%. These developments 80'000 are influenced by the foreign banks, which usually submit 70'000 fewer and smaller payments, since the bulk payment 60'000 business is not their priority. However, during the crisis, 50'000 they increasingly processed repo transactions through the Swiss Value Chain, thus increasing their share of the SIC 40'000 turnover. Since the counterparty of these repo transactions 30'000 was increasingly the SNB, their share of the SIC payment 20'000 volume grew accordingly. 10'000 0 Conclusion 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 The Swiss payment system worked flawlessly and was stable during the crisis. Its characteristics remained Sight deposits (in millions) mainly intact. This positive conclusion notwithstanding, it is necessary to continue to look at the existing risks. A case in point is the traditional central significance of a few Clearly visible monetary policy operations banks for flawless system operation. The important contri- Did the financial crisis really almost bypass the payment bution to the payment system’s stability during the current system? Not entirely. The monetary policy operations financial market crisis illustrates possible benefits of such executed by the SNB through the SIC system in reaction considerations and the resulting measures. < to the financial market crisis clearly left their marks. During the crisis, the sight deposit supply increased from formerly Marlene Amstad, Swiss National Bank below CHF 10 billion to more than 70 billion (see chart 3). [email protected] The banks favored security over profitability. And further- more, short-term funds were very sparse on the interbank market for a short time, resulting in a corresponding price increase (instead of the banks lending each other money) and in a situation where these funds were almost exclu- sively provided by the . 14 EVENT / CLEARIT | September 2009

10 years of repo through the Swiss Value Chain

The Swiss franc repo business has been processed through the integrated financial market infrastructure Swiss Value Chain since 1999; reason enough to celebrate, but also to look ahead. On July 2nd, the Swiss National Bank organized a special conference by invitation at the Hotel Schweizerhof in Lucerne.

National Bank Governing Board member Thomas J. Jordan Where to from here? spoke before approximately 150 participating national and During the podium discussion with national and internation- international bank representatives about the success of the al participation, expanding the group of participants was Swiss franc repo market. discussed with skepticism. For instance, to which authority would major enterprises be subject? Such questions are This market is still considered unique and is a leader being discussed and solutions developed in close coop- worldwide in terms of integrated trade and processing. eration between the Swiss National Bank and the private The transactions are standardized in reference to collat- sector (banks, SIX Group, etc.). eral basket, contract type, and other specifications. They are automated and completed on the electronic trade Urs Rüegsegger, CEO SIX Group, segued from the above platform Eurex Repo and processing thereafter is fully in- challenge to his presentation: “Lower access barriers and tegrated via the SIX Group securities processing system alternative business models intensify the competition for and the real-time payment system. Furthermore, in com- infrastructure services.” Dramatic changes can be expected parison with other banks internationally, it is unusual that and he requested that the strategic positioning should be the interbank repo market and the repo business use the determined without delay. He further explained that the same platform and are subject to the same collateral re- driving factors are consistent customer orientation, compe- quirements defined by the National Bank to implement titive prices, increased processing efficiency, successfully monetary policy. managing the complexity within the network, and less- defined boundaries between infrastructure operators and Financial market crisis reveals limits B2B services by the banks. He is convinced that – not only According to Thomas Jordan, the financial market crisis because of the joining of the various business areas – SIX revealed a few limits. It appears that, despite coverage Group is well positioned to master future challenges. < by means of securities, certain investors registered some doubt about the quality of their counterparts and/or the Gabriel Juri, SIX Interbank Clearing collateral. And last fall, for all the openness and interna- [email protected] tionality of the platform, it became necessary to resort to currency swaps in order to meet the liquidity requirements of foreign banks that weren’t connected to the Swiss franc repo market or that didn’t have collateral eligible for refi- nancing with central banks.

In order to address these apparent limits, the National Bank is currently examining various ideas, including the intro- duction of cash collateral, which is virtually the same as currency swaps in the form of repo transactions, and to expand the group of participants, possibly to also include non-banks. Furthermore, the introduction of a central coun- terparty able to increase trust in the system is also currently being reviewed. Mr. Jordan states that, ultimately, the goal is to increase the liquidity of the repo market, thus making sure that the success story of the Swiss franc repo market continues during the coming ten years. EVENT / CLEARIT | September 2009 15

Thomas J. Jordan, Swiss National Bank.

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Edition Edition 41 – September 2009 Published regularly, also online at www.CLEARIT.ch. Circu- lation German (1300 copies), French (400 copies) and English (available in electronic format only on www.CLEARIT.ch).

Council Patrick Bürki, PostFinance, Boris Brunner, UBS Ltd, Susanne Eis, SECB, Oliver Buob, SNB, Martin Frick, SIX Interbank Clearing Ltd, Andreas Galle, SIX Interbank Clearing Ltd, André Gsponer (Head), Enterprise Services Ltd, Gabriel Juri, SIX Interbank Clearing Ltd, Roger Mettier, Credit Suisse, Christoph Weder, Liechtensteinischer Bankenverband, Jean-Jacques Maillard, BCV

Editorial Team André Gsponer, Enterprise Services AG, Andreas Galle, Gabriel Juri (Head) und Christian Schwinghammer, SIX Interbank Clearing Ltd

Translation French: Word + Image, English: HTS

Layout Felber, Kristofori Group, Advertising agency

Printer Binkert Druck Ltd, Laufenburg

Contacts Product Management SIX Interbank Clearing Ltd T +41 44 279 4747 Customer Service Swiss Euro Clearing Bank GmbH T +49 69 97 98 98 35

Additional information about the Swiss payment traffic systems can be found on the Internet at www.six-interbank-clearing.com