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CIearIT

■ swiss€gate – Complete Euro Compatibility■ SIC3 – The Third Dimension

SIBOS SPECIAL EDITION 2001

Information about the Swiss Payment Traff ic Systems

«TARGET has proven successful» –Interview with ECB’s Dieter Becker

EDITORIAL

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André Bamat,

Chief Execution Off icer,

Swiss Interbank Clearing AG

3— Swiss Interbank Clearing Launches SIC3

4— swiss€gate – Complete Euro Compatibil ity5— Interview with ECB’s Dieter Becker

8— Cross-Border-Guide8— The Numbers for 2000

9— SIC3 – The Third Dimension10— remoteSIC – Worldwide Connection to Swiss Interbank Clearing

Dear Reader

Switzerland is looking forward to the final chapter of the Euro introduction. On January 1st, 2002, when the European Monetary Union completes

the launch of the new European currency, Switzerland will have flawlessly operated its Euro compatible infrastructure systems of the entire Swiss

financial market - stock exchange, CSD, and payment systems. Just like the Euroland systems! The same holds true for swiss€gate, the interconnec-

tion between euroSIC and TARGET.

It is therefore with great excitement that we are bringing you an interview with Mr. Dieter Becker - the driving force behind TARGET. In this issue

of ClearIT he talks candidly about his experiences and gives us insights into some future plans.

It seems the future of payment systems is being continually redefined - not only in Euroland, but in Switzerland, as well. The infrastructure is conti-

nually adapted to the new market requirements and optimization of existing systems is an ongoing effort. Within the near future remoteSIC will

enable access to euroSIC and SIC3 will combine the two separate systems SIC and euroSIC into a multi-currency system. At the same time, we are

upgrading our products to the latest standards in payment traffic.

I hope that Sibos 2001 will provide you with many new ideas and inspirations. We are looking forward to your visit at our SIC booth #4311.

CONTENT

ween banks – with a simple but significant

difference: it is not limited to one cur-

rency but open for any and all currencies.

That’s how Swiss Interbank Clearing has

added an entire dimension to interbank

payment traffic. Simple. Significant.

SIC3 Is not multiSIC or topSIC or starSIC.

What does that mean?

During its extensive R & D period the new

interbank payment system was given a

working title which aptly acknowledges

the innovation behind it. It’s true that due

to its multi currency function, the new

platform could have just as easily been

named multiSIC. Or topSIC, since it is an

internationally respected top product. Or

starSIC, since Swiss Interbank Clearing

opens up a whole new universe to the par-

ticipating banks.

But what was simply a working title just a

little while ago will now prove itself as

product and brand name to be reckoned

with:

SIC3, the innovation by SwissInterbank Clearing.

SIC3 is for 3rd Generation.

What does that mean?

SIC, the interbank payment system in

Swiss Franks, is the first generation. With

it, Swiss Interbank Clearing set the stan-

dards for security, efficiency, precision,

service and low costs – back in 1987.

With the introduction of euroSIC in 1999,

this competitive concept was successfully

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Swiss Interbank ClearingLaunches SIC3. And what that really means.

continued. euroSIC, the interbank pay-

ment system in Euro, is the 2nd generation.

Because with it, Swiss Interbank Clearing

entered new markets and began servicing

new clients all over Europe.

So logically, SIC3, the interbank payment

system in all currencies, is the 3rd genera-

tion. Starting in 2002, the first two gene-

rations will raise to a higher power: new

markets and new clients all over the

world, along with new standards for secu-

rity, efficiency, and the cost/service ratio.

That makes SIC3 the InterbankPayment System for all Banks,for all Currencies, and for theFuture.

And that really means some-thing!Productmanagement-Team,

Swiss Interbank Clearing AG,

pm@sic.ch

Increasingly, over the past few years SIC

management has been approached with

new service requests and market

demands. Euroland, interlinking, stan-

dards, CLS (Continuous Linked Settle-

ment), Eurex, Repo business are but a

few of the examples of new elements

within our industry. The very first new

product ideas and solutions were sket-

ched out in Brunnen, Switzerland, in

October 1999 – which brings us to the

heart of the matter: SIC3 is the very ans-

wer to those new market demands.

During the early parts of 2000, the

sketchy outlines made way for a feasibi-

lity study needing a working title. Out of

«SIC Continued Development» evolved

«Project SIC3». Now, in October 2001,

the first phase of the project is conclu-

ded with the implementation of the

multi currency platform.

High time for a real name. Our product

management team will show you some

of the meanings referred to in the final

version: SIC3.

André Bamat,

Swiss Interbank Clearing,

andre.bamat@sic.ch

SIC3 Has One More Dimension than SIC and

euroSIC.

What does that mean?

Swiss Interbank Clearing was in the mar-

ket with SIC, the interbank payment

system for Swiss Franks and with euroSIC,

the interbank payment system for Euro.

Now, SIC3 is the new payment system bet-

SWISS INTERBANK CLEARING

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Same-day, late in the afternoon, 10,000

Euro from a Finnish village at the Polar

Circle to a small town in the Swiss Alps?

You bet! But how? swiss€gate.

swiss€gate makes the direct connection

between the EU-region and euroSIC,

Switzer-land’s Euro clearing system.

TARGET connects 15 + 1 RTGS systems:

15 are within the EU, one is in Switzer-

land. Swiss Interbank Clearing has been

successfully processing and settling pay-

ments in Euro and Swiss Francs. With

swiss€gate by Swiss Interbank Clearing

banks anywhere within the EU can trans-

fer and receive Euro to and from Switzer-

land simply and with the greatest of ease.

To Switzerland via TARGET – a Fast and Secure Route ...Any EU bank connected to their national

RTGS-System and therefore to TARGET

can send Euro to Switzerland using that

route. Today it is no different for a bank

in Lisbon to send Euro via TARGET to

Helsinki for instance than to send them

via TARGET via swiss€gate to Zurich.

The bank in Lisbon can use their existing

SWIFT payment application and format

the payment intended for Zurich, Switzer-

land, the same exact way (SWIFT MT100,

MT103, MT202) the payment to Helsinki

in Finland is formatted. Adhering to the

TARGET cut-off times guarantees that the

transaction will reach the intended bene-

ficiary in Switzerland the same time it

would reach the beneficiary in Finland. Of

course any bank from Austria, England,

France, Ireland etc. transfer Euro via TAR-

GET to Switzerland, exactly the way they

would do it to Germany, Italy, Spain, or

the Netherlands: Switzerland is fully

accessible via TARGET and swiss€gate.

And no Nostro account connection with a

Swiss bank is required, nor a settlement

account for the Swiss clearing. More than

1600 branches of financial institutions

can be reached in Switzerland from any

place in the EU region via swiss€gate

... Just Like from Switzerlandto EU-region20,000 Euro same-day, late afternoon

from Ascona to Milan? You bet!

swiss€gate can do it. With swiss€gate

Swiss banks now have the opportunity to

reach around 36,000 banks and bank

branches within the EU and beyond –

without needing a Nostro account con-

nection.

All this by using the existing euroSIC

application. Processes and know how

established already for domestic pay-

ments can be used. Via swiss€gate and

TARGET a message can reach any one of

the European banks connected to TAR-

GET. Payments to Germany are directly

forwarded to EAF/ELS (Euro Access

Frankfurt/Euro Link Settlement), or in the

near future, to RTGSplus. This will help

reduce the need for correspondence bank

connections.

How Does swiss€gate Work? swiss€gate is the connection of euroSIC

to TARGET, which in turn interlinks the

European RTGS systems.

In 1998 Swiss banks founded the SECB

Swiss Euro Clearing Bank (SECB) in

Frankfurt, Germany. SECB is a direct par-

ticipant in the German EAF/ELS and, in

the near future, RTGSplus. As a bank in a

EU country, SECB has access to TARGET,

acting as a liquidity agent and system

manager for euroSIC.

swiss€gate: Complete Euro Compatibility

swiss€gate Topology

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This makes SECB an important, integra-

ted part in the swiss€gate payment

chain.

As often is the case – the most elegant

solution is also the simplest one: The

components were already there, we crea-

ted a new interlinking solution and the

SECB is the connecting link between TAR-

GET and euroSIC for all Euro payments

from the EU-region to Switzerland and

vice versa.

German banks can execute their Euro pay-

ments to Switzerland directly via their

national clearing systems EAF/ELS (or

RTGSplus).

TARGET Has Proven Successful

actual comprehensive capabilities we were

able to accomplish. Transaction rates,

too, are meeting the expectations of the

participants. And the reliability, with a

few exceptions, has been quite high thus

far.

The demands on the system will yet

increase with the introduction of CLS, the

Continuous Linked Settlement System.

The goal must be to obtain 100% availa-

bility for time-critical payments. We

started early on to focus on our emer-

gency procedures in order to be prepared

for any and all eventualities and are cur-

rently testing and rehearsing them toget-

her with the banks. If necessary, we will

resulting swiss€gate elegantly guarantees

that when transaction processing is done

in Euro, no bank is left out.

Christian Schwinghammer,

Swiss Interbank Clearing AG,

christian.schwinghammer@sic.ch

For more than two and a half years TAR-

GET (Trans-European Automated Real

Time Gross Settlement Express Transfer

System) has connected the Euro real

time gross settlement systems of the

various EU countries via their central

banks. ClearIT had a chance to interview

Mr. Dieter Becker, Manager of the Euro-

pean Central Bank’s TARGET and Pay-

ment Processing department.

ClearIT: Mr. Becker, TARGET has been up and

running for two and a half years. Are you satis-

fied with the system’s functionality and relia-

bility?

We are really quite satisfied, considering

the circumstances back then and the

BUSINESS & PARTNERS

Dieter Becker, Manager of the European

Central Bank’s TARGET and Payment

Processing department.

extensive time for the central banks and

the ECB to test and implement the system

proved to be perfect indeed.

ClearIT: Does the introduction of the Euro as

cash currency on the 1st of January 2002, affect

TARGET directly or indirectly?

Since TARGET has always been geared

towards the Euro, we are expecting vir-

tually no impact on the system.

There might be marginal adjustment

issues at the interfaces from the national

system to the participating banks when

the Euro finally becomes the cash cur-

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upgrade them to meet the increased CLS

requirements.

Since switching to emergency procedures

takes some time with technical problems,

we also sought the direct dialogue with

the market participants. As a result of

those communications, we have, in co-

operation with the banks, developed and

published the «Recommendations for CLS

Related Payments».

These recommendations make the

smooth processing of CLS payments

easier under operationally challenging

conditions.

I would especially like to emphasize the

active support of the relevant SWIFT for-

mats 100, 103, and 202, as well as the

leading role played by TARGET with

respect to MT 103+ to enhance straight-

through pro-cessing and setting appro-

priate standards together with the market

participants.

ClearIT: In the beginning various options were

being discussed to link the new Euro real-time

gross settlement systems by January 1, 1999.

Did the decision to conceptualize TARGET prove

to be the right one?

At the time when TARGET was first con-

ceptualized, several countries didn’t even

have RTGS systems and it wasn’t known

yet which countries would actually partici-

pate in the EMU. That’s why the only fea-

sible solution had to be the interlinking

architecture.

Any other type of architecture would have

gone beyond the scope at hand. Due to

the numerous participants and the sys-

tem’s complexity, the decision to allow

rency. At this point, I don’t expect much

fluctuation in transaction volumes. Even

after the introduction, if customer pay-

ments processed through TARGET should

increase, we don’t expect any problems;

the system has extra capacity.

ClearIT: How does the future of payment traffic

systems look like in Euroland? Will we still be

dealing with decentralized systems in TARGET?

A redesign of the system is currently being

discussed. One of the more important

questions obviously revolves around the

cost of the entire system. We will be

discussing different models with varying

extent of commonalities.

The trend to standardize external inter-

faces in order to avoid the cumbersome

conversions between national formats is

already evident in the current TARGET.

Today’s conventional cross border pay-

ment traffic in general still leaves consi-

derable room for improvement. The tools,

such as internationally recognized stan-

dards like MT 103+, IBAN or BIC, are

available. That’s why I don’t understand

why banks commit to substantial invest-

ments in e-business but aren’t actively

upgrading – minimally in parallel – the

conventional payment traffic to an appro-

priate level of automation.

I believe that banks are equating e-busi-

ness with dynamic force and growth and

the conventional payment traffic with

costs and potential losses. Yet even so,

banks are fearing competition within the

traditional payment traffic from non-

banks.

ECB Headquarters in Frankfurt

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years in straight-through processing of interna-

tional payments?

The introduction of TARGET and the

standards implemented therewith have

advanced straight through processing to

an extent not previously achieved (see illu-

stration). Some examples of specific

improvements are the mandatory use of

the Option A (BIC code), or naming a

bank’s clearing system within the BIC

directory.

ClearIT: IBAN is intended to enhance straight-

through processing. Would TARGET be able to

execute the routing of a payment solely based on

the IBAN?

As a result of TARGET using SWIFT stan-

dards, routing can be executed both with

BIC and IBAN. If the market requires

Banks should therefore re-think their

actual processes. Even if it is not apparent

at first glance, there are synergies between

payment traffic and e-business.

In any «e-scenario», money has to be

moved. One way of doing that is the stan-

dardized transmission, which could rea-

dily be integrated into the conventional

payment traffic. Optimizing the processes

in that way helps both the banks and their

customers.

ClearIT: Is ECB considering venturing into the

cross border high-volume payment traffic area?

How should we explain the difference

between national and cross border pay-

ments in Euroland to the citizens once the

Euro has been introduced as the cash

currency? A unified currency area needs a

unified payment traffic process. Clearly,

correspondence banks scattered all over

the Euro zone are not the answer.

The ECB and the national central banks

have perceived themselves as catalysts for

the development and implementation of

efficient processing systems without offe-

ring any of our own services. If, however,

the market is unable to produce its own

solutions, we may possibly change our

approach.

ClearIT: How will CLS impact TARGET?

CLS will bring with it a restructuring of

the payment flows. As a result, the num-

ber of transactions as well as the payment

amounts will decrease in TARGET.

ClearIT: In your opinion, what are the most sig-

nificant developments made over the past few

Check the ECB Website foradditional documents andinformation, including theTARGET annual report of May2001. (www.ecb.int)

Rejected payments in TARGET. Of 40,000 payments per day, around 130 are

rejected. Source: ECB TARGET Annual Report May 2001

IBAN routing, TARGET is equipped to

adjust accordingly. Today, the banks still

want to use the BIC for routing – the

IBAN has not yet been as fully integrated

into the payment structure that it could

be the sole tool for routing and customer

credits.

Christian Schwinghammer,

Swiss Interbank Clearing AG,

christian.schwinghammer@sic.ch

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PRODUCTS & SERVICES

Crossborder GuideSwiss Interbank Clearing has installed

its Crossborder Guide on the Internet.

We provide a complete list with pay-

ment examples in both SWIFT and SIC

formats and a fee overview for incoming

and outgoing payments via swiss€gate.

Finally, the Crossborder Guide wouldn’t

be complete without a listing of links

for all the RTGS systems’ Websites

within the EU.

The information and the examples,

indispensable for banks and financial

institutions, are continually updated

and supplemented.

Christian Swinghammer,

Swiss Interbank Clearing,

christian.schwinghammer@sic.ch

The Numbers of 2000 During 2000, a total of 149.5 million

transactions were processed, averaging

600,000 per day. The processed amount

volume totals CHF 44.6 trillion. On peak

days, Swiss Interbank Clearing processed

1.8 million transactions.

The chart illustrates shows the evolution

of prices and transactions since 1989.

During the year 2000 the number of euro-

SIC transactions has shown a positive

trend. On an average day, 3,162 pay-

ments were processed, on peak days as

many as 4,839.

The opportunity for cross border pay-

ments is regularly used, as well. Each day,

between January and December 2000, an

average of 976 payments were settled in

the amount of approx. one billion Euro.

Bruno Kudermann,

Swiss Interbank Clearing AG,

bruno.kudermann@sic.ch

Structure of a MT 103 payment from Italy to Switzerland

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SIC3 is the working title of the – strate-

gically speaking – most important proj-

ect at Swiss Interbank Clearing.

What is but a working title today will

soon be a significant product and brand

name.

What are this product’s predominant

features?

Fast and secure: SIC-RTGSFirst off, there is the multi-currency RTGS

platform, including SIC and euroSIC. We

call this platform SIC-RTGS. SIC-RTGS is

based on the Swiss Interbank Clearing

Real-Time-Gross-Settlement system which

has now been successfully operational for

over 14 years. The SIC-RTGS system is

designed for high value and time sensitive

payments even though, due to its very

attractive pricing, many low value transac-

tions flow through the system. The settle-

ment occurs immediately after payment

delivery, providing there are sufficient

funds in the settlement account. Cur-

rently, for the SIC/euroSIC-RTGS systems

there are two system managers: the Swiss

National Bank (SNB) for Swiss Francs and

the Swiss Euro Clearing Bank (SECB) in

Frankfurt for Euro.

Due to the platform’s multi-currency

capability, the system can not only pro-

cess Swiss Francs and Euro, but other cur-

rencies as well when the need arises. Our

mandate-capability option allows for

additional currencies as well as new

system managers to be added on

demand.

PayFact – The FactoryFeature number two: In addition to the

SIC-RTGS, Swiss Interbank Clearing will

offer an efficient payment system for low

value amounts and non-time sensitive

payments. We named this particular

system «PayFact» from «Payments Fac-

tory». The name was specifically chosen

to indicate the high volume payment

system nature of PayFact, processed «fac-

tory style». And that, in turn, means fully

automated processing at very low prices.

Just like SIC-RTGS, PayFact is also a

multi-currency product. PayFact is desi-

gned for streamlined payment processing

of bulk payments. These transactions can

be processed as credit transfers while Pay-

Fact simultaneously meets the need for

direct debit payment processing.

In combining SIC-RTGS with PayFact,

Swiss Interbank Clearing is offering the

perfectly matched payment traffic systems

for any specific use. The access to the SIC3

system will not be limited to Switzerland,

but will be available worldwide.

International CompatibilityThe third cornerstone: In light of the glo-

balization and international networking,

compatibility with other systems is more

important than ever. Swiss Interbank

Clearing has taken this paradigm into

consideration by offering a product con-

structed of modules. SIC3 will consist of

two pillars: Payment transmission and

reconciliation features on one side and

cash management functions on the other.

Both pillars can be divided vertically into

three levels: The network level, the busi-

ness platform, and the business standards

unit.

Network Unit Payment traffic specifically demands

security. Then add sufficient capacity

requirements, since large files for high

volume payment traffic must be exchan-

ged. We are therefore looking at proprie-

tary IP networks and are in the midst of

preliminary negotiations with some

renown network companies. The cash

management side demands high availabi-

lity in conjunction with low transaction

costs. A «virtual private network» based

on the Internet in connection with ade-

quate security measures – e.g. 128 bit

SIC3 – The Third Dimension

SIC3 Topology

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encoding with SecureID card appropria-

tely meets these requirements.

Business PlatformWe are yet defining the business platform

which SIC3 application will run on. The

validation of the standards will be one

important function. Add to that the

archiving capability requirements. And

finally, the platform for the cash manage-

ment functions must be interactive.

Business StandardsWe are planning to use SWIFT standards,

fully aware that they are currently under-

going significant change.

We are prepared to adapt to the new

swiftML Standards as soon as they have

been accepted internationally.

With the flexibility of SIC3 – the product

that adds another dimension – we have

proven yet again that we are clearly focu-

sed on the future of the continually chan-

ging demands and challenges of our evol-

ving industry.

Christian Schwinghammer,

Swiss Interbank Clearing AG,

christian.schwinghammer@sic.ch

remoteSIC: WorldwideConnection to SwissInterbank ClearingFinancial institutions abroad can now

easily access the Swiss payment systems.

Swiss Interbank Clearing introduces

remoteSIC, a new worldwide payment

platform, using SWIFT and the Internet.

More and more foreign financial institu-

tions are seeking to optimize their pay-

ment traffic with Switzerland and are

signing on as Swiss Interbank Clearing

participants.

It is paramount that this be achieved with

little effort and at a reasonable cost.

Foreign financial institutions in particular

are expecting acceptance of SWIFT stan-

dards for communication and message

transmission.

Swiss Interbank Clearing has taken all this

into consideration and created remoteSIC

for our clients. Starting in June 2001,

remoteSIC provides direct access to the

SIC system for Swiss Francs: via SWIFT

and Internet.

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Some of the major benefits for direct

Swiss Clearing participants:

Extended clearing hours; payments can be

processed the same day even when sub-

mitted in the afternoon.

All Swiss banks are directly accessible

Domestic pricing for payments

Integration into the Swiss value chain.

This is especially important for Eurex and

SWX Repo participants.

remoteSIC is a Two-PartSystem: 1. Payments

The ordering institution submits payment

orders (e.g. MT103/202) to the Swiss

Interbank Clearing BIC. remoteSIC con-

verts the data into the SIC format and

forwards the payment for processing.

The process is mirrored on the incoming

side: transactions settled benefiting a par-

ticipant are converted and delivered via

SWIFT.

2. Interactive Cash Management

The SIC system has been offering a finely

tuned cash management component. For

the first time, remoteSIC makes it possi-

ble for financial institutions to access

their SIC accounts via Internet in real

time. It is now possible to make direct

inquiries concerning:

individual payments

accumulated outgoing and incoming pay-

ments

account status by value date

remoteSIC and some of itsAdvantages:remoteSIC simplifies the introduction of

the SIC connection at the financial insti-

tutes. The use of the familiar SWIFT and

Internet environments prove to be special

advantages, in turn making remoteSIC

extremely cost effective.

Since remoteSIC is not a proprietary

system it does not require cumbersome

and expensive adaptations of existing in-

house software.

Security: Payments are processed via SWIFT FIN.

They benefit from the high level of security

within the SWIFT network, contingent

upon the bilateral key exchange (BKE).

For interactive account management, an

encoded Internet connection is esta-

blished using a 128-bit key. Authentica-

tion occurs using electronic certification

on chip cards and/or SecurID cards. We

are combining the highest level of security

with user-friendly handling.

Outlook: Starting in January 2002, financial institu-

tions participating in remoteSIC will have

direct access to euroSIC. euroSIC is the

Euro payment system serving the Swiss

financial market with cost-effective Euro

transaction processing.

Starting in 2002, we will be enhancing the

current account statement by adding

detail transactions. This will greatly sim-

plify the reconciliation at the banks.

This demonstrates that the continually

changing demands of the financial market

influence our perspectives daily and we

are always looking to enhance our services

– be it locally or worldwide.

Bruno Kudermann,

Swiss Interbank Clearing AG,

bruno.kudermann@sic.ch

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Meet Our remoteSIC Clients:CH Repo Market Participants

Eurex Participants

Banks with commercial CHF

payment traffic

SWX/Virt-x-Members

•|

Security for the online access: SecurID-card and electronic certif ication

| 10 |

IMPRESSUM | Published by Swiss Interbank Clearing AG, Hardturmstrasse 201, CH-8021 Zürich, Switzerland || Additional Issues/Feedback clearit@sic.ch | SIBOS Special Issue 2001 | Printed in English |

| Editorial Team André Bamat, C.E.O., Swiss Interbank Clearing AG, Susanne Eis, SECB Swiss Euro Clearing Bank GmbH, André Gsponer, Enterprise Services AG, Beat Härry, Credit Suisse First Boston, Daniel Heller, Swiss National Bank,

Bruno Kudermann, Editorial Manager, Swiss Interbank Clearing AG, Ulrich Merz, UBS AG, Ursula Praz, Postfinance, Christian Schwinghammer, Swiss Interbank Clearing AG, Urs Zumbrunnen, RBA-Service |

| Translation Haechler Translation Services | Layout Mirjam Steiner Advertising Agency | Printed by Telekurs Print Shop || Contact SIC SIC Operation Center +41 1 279-4200, Product Management +41 1279-4747, euroSIC euroSIC Operation Center +41 1 170-4700, Product Management +41 1 279-4747,

SECB SECB Operation Center, +49 69 97 98 98 0, Customer Service SECB, +49 69 97 98 98 35 || Additional information about the Swiss payment traffic systems can be found on the Internet at

www.sic.ch or www.secb.de |

Swiss Interbank Clearing – Meet us at Sibos, Booth #4311