Large Value Payments (Inter-Bank Fund Transfer System)
In line with global trends in managing inherent payment and settlement risks in large value payments, the CBN commenced the operations of the Real Time Gross Settlement System in December 2006. The CBN RTGS (Central Bank of Nigeria Inter-bank Fund Transfer - CIFT) System interfaces with the core banking application (T24 System) and had all the Deposit Money Bank and Discount Houses as direct participants.
A new RTGS System was deployed on December 18, 2013 along with Central Securities Depository (CSD). The purpose of the replacement of the old RTGS System is to have a robust system that will meet all the users' requirements and addresses all the challenges with the old system.
Features of the new RTGS System
The new RTGS interfaces with Scripless Securities Settlement System (S4) to ensure delivery versus payment. In other words, before securities are moved from settler’s portfolio to the buyer’s portfolio, S4 will send a message to RTGS System to confirm that the buyer has sufficient funds in its account before movement of funds from the buyer’s account to the seller’s account can take place. Upon confirmation, RTGS sends message to S4 to effect the securities movement from sellers portfolio to buyers portfolio.
The new RTGS facilitates straight-through-processing (STP) between RTGS and core banking application. All banks including CBN were advised to have STP to ensure that the beneficiaries of 3rd party transfers get value in their account immediately.
SWIFT Messaging format was adopted and the system rides on SWIFT communication network. The under-listed messaging types are used for transactions while other messages such as MT910, MT900, etc are just for settlement confirmation or error message.
- MT103 (as 3rd Party Customer transfer)
- MT202 (as InterBank transfer)
- MT102 (as multiple credit payment)
- MT202 (as Cash Withdrawal)
- MT971 (as Net Clearing settlement)
- MT202 (as Standing Deposit Facility)
Linkage with approved external systems such as NIBSS: NIBSS transmit net settlement position of banks from clearing to RTGS for settlement at a designated time. Zero session is 9am for settlement of CSCS file, 1st session is at 10am for settlement of cheque and NEFT, 2nd session at 2pm for settlement of return cheque and NEFT, 3rd session at 3pm for inter-bank settlement of cards and other electronic payments.
Payment processing: Payment messages are settled if and only if the sending bank has sufficient funds/available balance in its account for the payment amount to be transferred to the receiving bank. If sender does not have sufficient available balance for a payment, the payment will be ‘queued’
Queuing Management: Queued payment will be released for settlement based on priority + First-In-First-Out (FIFO) within the daily operational hours when funds are available. This means payment with same priority will be based on FIFO only but payment with higher priority will be treated before those with lower priority.
Priority Setting: Banks shall attach priority code to a payment instruction. However, if the bank does not specify a priority code for a payment order, the system would automatically assign the lowest priority code, which is the default code. CBN initiated payment and clearing transactions have higher priority than bank-initiated payments.
Reordering: Banks could re-order their payment orders on queue by changing their priority.
Cancellation:Outstanding payment instructions on the queue shall be cancelled automatically by the system at the stipulated cut-off time for unsettled payments cancellation. Banks could cancel their payment instructions on the queue any time before the end of the stipulated cut-off time for unsettled payments cancellation.
Gridlock Resolution: In case of gridlock of payment instructions on the queue, the System shall apply an algorithm to select those payments that can be settled. This action will bring about a bypass of the FIFO method. Gridlock resolution could occur anytime during the hours of operations.
Intraday Liquidity Facility (ILF): In order to enable smooth operation of the system, banks could apply CBN to provide ILF to enable them make payments. The facility is free, provided it is repaid within the day, otherwise, it is converted to overnight repo at punitive interest rate.
Where a participant’s account cannot meet its net settlement position because of it being unfunded, the system shall automatically initiate an ILF which shall be charged to the participant’s clearing collateral. Where the participant defaults at the close of business, the ILF shall be converted to overnight repo at a Penal Rate of MPR+7.
Whenever net settlement is being processed, other transaction types initiated by banks do not settle until the net settlement is completed.
Future Value Payments: Banks can initiate payment with future value date of not later than T+2.
Features of Scripless Securities Settlement System (S4)
- It is used for auctions
- Serves as depository for government and fixed income securities
- For straight through processes of money market products
- Monitors portfolio movements of all the bills traded
- Settles 2-way- quote transactions on money market instruments , repos, standing lending/deposit facilities and OBB transactions
- Handles collateral management especially for repos and securities lending
- Manages pledges including third party
- Interfaces with other stakeholders dealing platforms
- Interfaces with RTGS for cash settlement of securities transactions
Transactions in equities are conducted through the Nigerian Stock Exchange (NSE). Beginning from April 1997, the clearing and settlement activities at the Nigerian Capital Market improved drastically with the coming on stream of the Central Securities Clearing System (CSCS), a subsidiary of the NSE. This resulted in the ability of the exchange to operate a Delivery-Vs- Payment trading regime on a rolling T+3 transaction cycle. The settlement is achieved through NIBSS which facilitates the inter-bank settlement between CSCS designated settlement banks at which the stockbroking firms maintained trading account.
To reduce trade cancellation and eliminate "failed trades", a trade guarantee fund exists and managed independent of the Exchange/CSCS. As such, recourse is made to the fund whenever a stockbroking firm fails to fund its account for trade settlement not later than day T+3 (settlement day).