Appendix I TECHNICAL SPECIFICATIONS FOR THE PROCESSING OF PAYMENT ORDERS

In addition to the terms and conditions of TARGET2-ECB, the following rules shall apply to the processing of payment orders:

1. (1)

   TARGET2 uses SWIFT services for the exchange of messages. Each participant therefore needs a connection to SWIFT’s Secure IP Network. Each participant’s PM account shall be identified by an eight- or 11-digit SWIFT BIC. Furthermore, each participant shall pass a series of tests to prove its technical and operational competence before it may participate in TARGET2-ECB.

2. (2)

   For the submission of payment orders and the exchange of payment messages in the PM the SWIFTNet FIN Y-copy service shall be used. A dedicated SWIFT Closed User Group (CUG) shall be set up for this purpose. Payment orders within such TARGET2 CUG shall be directly addressed to the receiving TARGET2 participant by entering its BIC in the header of the SWIFTNet FIN message.

3. (3)

   For the information and control services the following SWIFTNet services may be used:

   1. (a)

      SWIFTNet InterAct;

   2. (b)

      SWIFTNet FileAct; and/or

   3. (c)

      SWIFTNet Browse.

4. (4)

   The security of the message exchange between participants shall rely exclusively on SWIFT’s Public Key Infrastructure (PKI) service. Information on the PKI service is available in the documentation provided by SWIFT.

5. (5)

   The ‘bilateral relationship management’ service provided by SWIFT’s Relationship Management Application (RMA) shall only be used with the central destination BIC of the SSP and not for payment messages between TARGET2 participants.

1. (1)

   The following SWIFTNet FIN/SWIFT system message types are processed:

   F1Message Type	Type of use	Description
   MT 103	Mandatory	Customer payment
   MT 103+	Mandatory	Customer payment (Straight Through Processing)
   MT 202	Mandatory	Bank-to-bank payment
   F2MT 202COV	Mandatory	Cover payment
   MT 204	Optional	Direct debit payment
   MT 011	Optional	Delivery notification
   MT 012	Optional	Sender notification
   MT 019	Mandatory	Abort notification
   F3MT 900	Optional	Confirmation of Debit/Credit line change
   MT 910	Optional	Confirmation of Credit/Credit line change
   MT 940/950	Optional	(Customer) Statement Message

2. (2)

   When they register with TARGET2-ECB, direct participants shall declare which optional message types they will use, with the exception of MT 011 and MT 012 messages in relation to which direct participants shall decide from time to time whether or not to receive them with reference to specific messages.

3. (3)

   Participants shall comply with the SWIFT message structure and field specifications, as defined in the SWIFT documentation and under the restrictions set out for TARGET2, as described in Chapter 9.1.2.2 of the User Detailed Functional Specifications (UDFS), Book 1.

4. (4)

   Field contents shall be validated at the level of TARGET2-ECB in accordance with the UDFS requirements. Participants may agree among each other on specific rules regarding the field contents. However, in TARGET2-ECB there shall be no specific checks as to whether participants comply with any such rules.

5. (5)

   F4MT 202COV messages shall be used for making cover payments, i.e. payments made by correspondent banks to settle (cover) credit transfer messages which are submitted to a customer’s bank by other, more direct means. Customer details contained in MT 202COV shall not be displayed in the ICM.

1. (1)

   All payment orders shall pass a double-entry check, the aim of which is to reject payment orders that have been submitted more than once by mistake.

2. (2)

   The following fields of the SWIFT message types shall be checked:

   Details	Part of the SWIFT message	Field
   Sender	Basic Header	LT Address
   Message Type	Application Header	Message Type
   Receiver	Application Header	Destination Address
   Transaction Reference Number (TRN)	Text Block	:20
   Related Reference	Text Block	:21
   Value Date	Text Block	:32
   Amount	Text Block	:32

3. (3)

   If all the fields described in subparagraph 2 in relation to a newly submitted payment order are identical to those in relation to a payment order that has already been accepted, the newly submitted payment order shall be returned.

If a payment order is rejected, the instructing participant shall receive an abort notification (MT 019) indicating the reason for the rejection by using error codes. The error codes are defined in Chapter 9.4.2 of the UDFS.

1. (1)

   For payment orders using the Earliest Debit Time Indicator, the codeword ‘/FROTIME/’shall be used.

2. (2)

   For payment orders using the Latest Debit Time Indicator, two options shall be available.

   1. (a)

      Codeword ‘/REJTIME/’: if the payment order cannot be settled by the indicated debit time, the payment order shall be returned.

   2. (b)

      Codeword ‘/TILTIME/’: if the payment order cannot be settled by the indicated debit time, the payment order shall not be returned but shall be kept in the relevant queue.

   Under both options, if a payment order with a Latest Debit Time Indicator is not settled 15 minutes prior to the time indicated therein, a notification shall automatically be sent via the ICM.

3. (3)

   If the codeword ‘/CLSTIME/’ is used, the payment shall be treated in the same way as a payment order referred to in subparagraph 2(b).

1. (1)

   Offsetting checks and, if appropriate, extended offsetting checks (both terms as defined in paragraphs 2 and 3) shall be carried out on payment orders entered into the entry disposition to provide quick, liquidity-saving gross settlement of payment orders.

2. (2)

   An offsetting check shall determine whether the payee’s payment orders that are at the front of the highly urgent or, if inapplicable, the urgent queue are available to be offset against the payer’s payment order (hereinafter ‘offsetting payment orders’). If an offsetting payment order does not provide sufficient funds for the respective payer’s payment order in the entry disposition, it shall be determined whether there is sufficient available liquidity on the payer’s PM account.

3. (3)

   If the offsetting check fails, the ECB may apply an extended offsetting check. An extended offsetting check determines whether offsetting payment orders are available in any of the payee’s queues regardless of when they joined the queue. However, if in the queue of the payee there are higher priority payment orders addressed to other TARGET2 participants, the FIFO principle may only be breached if settling such an offsetting payment order would result in a liquidity increase for the payee.

1. (1)

   The treatment of payment orders placed in queues depends on the priority class to which it was designated by the instructing participant.

2. (2)

   Payment orders in the highly urgent and urgent queues shall be settled by using the offsetting checks described in paragraph 6, starting with the payment order at the front of the queue in cases where there is an increase in liquidity or there is an intervention at queue level (change of queue position, settlement time or priority, or revocation of the payment order).

3. (3)

   Payments orders in the normal queue shall be settled on a continuous basis including all highly urgent and urgent payment orders that have not yet been settled. Different optimisation mechanisms (algorithms) are used. If an algorithm is successful, the included payment orders will be settled; if an algorithm fails, the included payment orders will remain in the queue. Three algorithms (1 to 3) shall be applied to offset payment flows. By means of Algorithm 4, settlement procedure 5 (as defined in Chapter 2.8.1 of the UDFS) shall be available for the settlement of payment instructions of ancillary systems. To optimise the settlement of highly urgent ancillary system transactions on participants’ sub-accounts, a special algorithm (Algorithm 5) shall be used.

   1. (a)

      Under Algorithm 1 (‘all-or-nothing’) the ECB shall, both for each relationship in respect of which a bilateral limit has been set and also for the total sum of relationships for which a multilateral limit has been set:

      1. (i)

         calculate the overall liquidity position of each TARGET2 participant’s PM account by establishing whether the aggregate of all outgoing and incoming payment orders pending in the queue is negative or positive and, if it is negative, check whether it exceeds that participant’s available liquidity (the overall liquidity position shall constitute the ‘total liquidity position’); and

      2. (ii)

         check whether limits and reservations set by each TARGET2 participant in relation to each relevant PM account are respected.

      If the outcome of these calculations and checks is positive for each relevant PM account, the ECB and other CBs involved shall settle all payments simultaneously on the PM accounts of the TARGET2 participants concerned.

   2. (b)

      Under Algorithm 2 (‘partial’) the ECB shall:

      1. (i)

         calculate and check the liquidity positions, limits and reservations of each relevant PM account as under Algorithm 1; and

      2. (ii)

         if the total liquidity position of one or more relevant PM accounts is negative, extract single payment orders until the total liquidity position of each relevant PM account is positive.

      Thereafter, the ECB and the other CBs involved shall, provided there are sufficient funds, settle all remaining payments (except the extracted payment orders) simultaneously on the PM accounts of the TARGET2 participants concerned.

      When extracting payment orders, the ECB shall start from the TARGET2 participant’s PM account with the highest negative total liquidity position and from the payment order at the end of the queue with the lowest priority. The selection process shall only run for a short time, to be determined by the ECB at its discretion.

   3. (c)

      Under Algorithm 3 (‘multiple’) the ECB shall:

      1. (i)

         compare pairs of TARGET2 participants’ PM accounts to determine whether queued payment orders can be settled within the available liquidity of the two TARGET2 participants’ PM accounts concerned and within the limits set by them (by starting from the pair of PM accounts with the smallest difference between the payment orders addressed to each other), and the CB(s) involved shall book those payments simultaneously on the two TARGET2 participants’ PM accounts; and

      2. (ii)

         if, in relation to a pair of PM accounts as described under point (i), liquidity is insufficient to fund the bilateral position, extract single payment orders until there is sufficient liquidity. In this case the CB(s) involved shall settle the remaining payments, except the extracted ones, simultaneously on the two TARGET2 participants’ PM accounts.

      After performing the checks specified under subparagraphs (i) to (ii), the ECB shall check the multilateral settlement positions (between a participant’s PM account and other TARGET2 participants’ PM accounts in relation to which a multilateral limit has been set). For this purpose, the procedure described under subparagraphs (i) to (ii) shall apply mutatis mutandis.

   4. (d)

      Under Algorithm 4 (‘partial plus ancillary system settlement’) the ECB shall follow the same procedure as for Algorithm 2, but without extracting payment orders in relation to the settlement of an ancillary system (which settles on a simultaneous multilateral basis).

   5. (e)

      Under Algorithm 5 (‘ancillary system settlement via sub-accounts’) the ECB shall follow the same procedure as for Algorithm 1, subject to the modification that the ECB shall start Algorithm 5 via the Ancillary System Interface and shall only check whether sufficient funds are available on participants’ sub-accounts. Moreover, no limits and reservations shall be taken into account. Algorithm 5 shall also run during night-time settlement.

4. (4)

   Payment orders entered into the entry disposition after the start of any of algorithms 1 to 4 may nevertheless be settled immediately in the entry disposition if the positions and limits of the TARGET2 participants’ PM accounts concerned are compatible with both the settlement of these payment orders and the settlement of payment orders in the current optimisation procedure. However, two algorithms shall not run simultaneously.

5. (5)

   During daytime processing the algorithms shall run sequentially. As long as there is no pending simultaneous multilateral settlement of an ancillary system, the sequence shall be as follows:

   1. (a)

      algorithm 1,

   2. (b)

      if algorithm 1 fails, then algorithm 2,

   3. (c)

      if algorithm 2 fails, then algorithm 3, or if algorithm 2 succeeds, repeat algorithm 1.

   When simultaneous multilateral settlement (‘procedure 5’) in relation to an ancillary system is pending, Algorithm 4 shall run.

6. (6)

   The algorithms shall run flexibly by setting a pre-defined time lag between the application of different algorithms to ensure a minimum interval between the running of two algorithms. The time sequence shall be automatically controlled. Manual intervention shall be possible.

7. (7)

   While included in a running algorithm, a payment order shall not be reordered (change of the position in a queue) or revoked. Requests for reordering or revocation of a payment order shall be queued until the algorithm is complete. If the payment order concerned is settled while the algorithm is running, any request to reorder or revoke shall be rejected. If the payment order is not settled, the participant’s requests shall be taken into account immediately.

1. (1)

   The ICM may be used for obtaining information and managing liquidity. SWIFT’s Secure IP Network (SIPN) shall be the underlying technical communications network for exchanging information and running control measures.

2. (2)

   With the exception of warehoused payment orders and static data information, only data in relation to the current business day shall be available via the ICM. The screens shall be offered in English only.

3. (3)

   Information shall be provided in ‘pull’ mode, which means that each participant has to ask to be provided with information.

4. (4)

   The following modes shall be available for using the ICM:

   1. (a)

      Application-to-application mode (A2A)

      In A2A, information and messages are transferred between the PM and the participant’s internal application. The participant therefore has to ensure that an appropriate application is available for the exchange of XML messages (requests and responses) with the ICM via a standardised interface. Further details are contained in the ICM User Handbook and in Book 4 of the UDFS.

   2. (b)

      User-to-application mode (U2A)

      U2A permits direct communication between a participant and the ICM. The information is displayed in a browser running on a PC system (SWIFT Alliance WebStation or another interface, as may be required by SWIFT). For U2A access the IT infrastructure has to be able to support cookies and JavaScript. Further details are described in the ICM User Handbook.

5. (5)

   Each participant shall have at least one SWIFT Alliance WebStation, or another interface, as may be required by SWIFT, to have access to the ICM via U2A.

6. (6)

   Access rights to the ICM shall be granted by using SWIFT’s ‘Role Based Access Control’. The SWIFT ‘Non Repudiation of Emission’ (NRE) service, which may be used by participants, allows the recipient of an XML message to prove that such message has not been altered.

7. (7)

   If a participant has technical problems and is unable to submit any payment order, it may generate preformatted backup liquidity redistribution and backup contingency payments by using the ICM. The ECB shall open such functionality upon request of the participant.

8. (8)

   Participants may also use the ICM to transfer liquidity:

   1. (a)

      from their PM account to their account outside the PM;

   2. (b)

      between the PM account and the participant’s sub-accounts;F5 and

   3. (c)

      F6from the PM account to the technical account managed by the ancillary system using settlement procedure 6 real-time;

   4. (d)

      by means of a PM to T2S DCA liquidity transfer order or, when the ICM is used in combination with the T2S value added services, a T2S DCA to PM liquidity transfer order; and

   5. (e)

      F7by means of a PM to TIPS DCA liquidity transfer order or a TIPS DCA to PM liquidity transfer order.

Further details and examples explaining the above rules are contained in the UDFS and the ICM User Handbook, as amended from time to time and published on the ECB’s website in English.