Software implemented tool for handling central bank credits to borrowing credit institutions

The invention relates to the area of central bank credits to borrowing credit institutions. The provision of such central bank credits is subject to strict rules, where credits have to be fully collateral ised with eligible securities and/or credit claims certified as equivalent / mutually acceptable / mutually accepted according to established common rules. The expression "fu//y collateralised" in this context means that the value of the collateral is, at any time, equal or superior to the value of the outstanding credits according to established common rules in the field of risk control.

It is the objective of the present invention to provide a tool, more in particular a "computer implemented" / "software implemented" tool, for assisting central banks in handling the provision of central bank credits to borrowing credit institutions, in such way that said central bank credits are fully collateralised with eligible securities and/or credit claims, certified as equivalent / mutually acceptable / mutually accepted according to established common rules.

To achieve such objective the present invention provides a software implemented tool for assisting central banks in handling the provision of central bank credits to borrowing credit institutions, which comprises - at least one means for Straight-Through treatment of credit and collateral transactions by a real-time global pool positioning mechanism for each borrowing party, with a synchronic link to a Real-time Gross Settlement (RTGS) infrastructure, - at least one means for assigning parameters for each central bank concerning a collateral framework according to said common rules,

modifiable by a managing instance in accordance with said common rules (more specifically in such way that whenever there is a change in the collateral framework, it can be met with by merely adapting said parameters), and - at least one central database of eligible securities (a so called Eligible Assets Database - EADB), which is shared among the central banks, with at least one means for recording into said database all data necessary to uniformly valuate said securities according to a source oriented hierarchy and at least one means for hierarchal cascading of valuation prices so that each col lateral ised security has the same value for each central bank.

The expression Straight-Through treatment in this context means a treatment according to an automation process allowing data to be entered only once and then used for all subsequent processes.

The expression Real-time Gross Settlement (RTGS) in this context means a payment system in which processing and settlement take place continuously and in real-time

The software implemented tool ("system") according to the present invention, also designated by the expression "Euro Collateral Management System" (ECMS) is an application developed, in particular, for National Central Banks (NCBs), for managing central bank credit operations toward borrowing credit institutions and the underlying collateral. The system according to the invention is a multi-NCB application, i.e. it is designed to manage the business of several NCBs at the same time, in such a way that each participating NCB remains the sole manager of its own data and is exclusively entrusted to access and treat these proprietary data for operational purposes. The strict confidentiality of these utterly sensitive proprietary data remains therefore granted

Guiding principles for the preferred functionality of the system are: o the General Documentation on "Eurosystem" monetary policy instruments and procedures (GenDoc) o the implementation of monetary policy in the Euro area: Manual on internal Eurosystem procedures (Internal Manual) o the Correspondent Central Banking Model (CCBM) Agreement and the CCBM user requirements.

The system is preferably based on : o a shared multi-NCB IT platform o harmonised standards and procedures o decentralised business relations o use of SWIFT with a common BIC address

In its preferred embodiments the system is capable to deal with complex situations, e.g.: o the presence of multiple Central Securities Depositories (CSDs) per country o the possibility of interacting with an International Central Securities

Depository (ICSD) o the introduction of the CCBM time benchmarks o the complex nature of a lot of securities o the presence of eligible non-EEA G-10 assets o tax issues o Correspondent Central Bank (CCB) business.

An essential feature of the invention resides in the fact that the system operates on a Straight Through Processing (STP) basis.

The software implemented tool according to the invention therefore most suitably integrates three different tasks into one system: o management of the European Central Bank (ECB) eligible assets database o collateral management on both domestic and cross-border basis (link arrangements and both Home Central Bank (HCB) and Correspondent Central Bank (CCB) tasks) for securities and credit claims o settlement of open market operations.

In a most preferred embodiment of the system according to the invention the following central bank credit operations can be processed : o reverse transactions, such as Main Refinancing Operations (MROs) and Long Term Refinancing Operations (LTROs) o fixed-term deposits o credit freezings o marginal lending o intraday credit.

The system according to the invention thus offers the following preferred functionalities: o real-time global positioning, for each counterparty in each NCB, checking the pooled amount of collateral against all outstanding credits o detailed position monitoring of the collateral via the collateral pool o processing of incoming collateral mobilisation instructions o mobilisation of collateral o eligibility checks

o valuation of assets (securities and credit claims) o settlement of credit operations o margining o handling corporate actions, such as coupon and redemption calculation and payment o providing accounting information for the general ledger o cost charging.

For collateral management, the system according to the invention preferably applies a pooling mechanism: in such embodiment of the invention all delivered collateral is valued and pooled, per counterparty, in one global sum of guarantees. This global sum of collateral has to cover all outstanding credits. The unused or idle part of the collateral pool results in a specific credit line (such as for Instance in the so called TARGET system). Likewise, every event affecting the global sum of collateral (e.g. a delivery/return of collateral or a value change of an asset element) results in an update of the credit line. Tender allotment results are imported into the system platform according to the invention. If there is enough collateral to cover them, the system creates the connected payments concerned for settlement (for instance in TARGET). Moreover, the system offers the chance to net new and maturing tenders.

According to a further preferred feature of the invention, the system offers a powerful SWIFT message routing service. The system recognises and validates incoming instructions on: o the type of asset o the Securities Settlement System (SSS) of settlement o the kind of operation o the relevant counterparty.

After processing the underlying instruction/information and when required, the system most suitably prepares an outgoing SWIFT message to the right addressee (e.g. counterparty, NCB, SSS, etc).

According to still a further preferred feature of the invention, the system includes several valuation solutions for securities via a cascade of prioritised price feeders, e.g.: o manual price input o NBB-SSS o SWIFT messages (MT 544, MT 535 from CCBs) o ISMA (International Securities Market Association) : this association provides prices for Eurobond and domestic Government Bond Issues o BIWEB (this Euroclear portal provides pricing information) o Deutsche Bundesbank / Banque de France valuation hub which are stored in the extension of the EADB mirror.

From an architectural point of view, the system according to the invention may most appropriately consist of two sub-systems build around : o a mirror Eligible Assets Database (EADB mirror) o the actual NCB-owned data.

Where the system according to the invention has one single set of EADB tables for all participating NCBs, each participating NCB has its own set of proprietary data tables.

The EADB mirror referred to above most preferably consists of an extended mirror copy of the eligible asset database managed by the ECB. This EADB mirror is extended because the ECB eligible asset database does not provide adequate information on pricing, coupons, redemptions

and interest formulas. This information is necessary to enable real-time Straight Through Processing (STP), the correct valuation of collateral instructions and the processing of corporate actions. Eligible credit claims may also be registered in such EADB mirror.

The detailed functions of most appropriate modules for a particularly preferred embodiment of the system according to the invention are the following :

Basic module

o monitoring tool for NCBs via secured Business to Customer (B2C) web access to the basic system according to the invention o a set of basic tables (e.g. counterparties, system parameters, loggings, payment paths, etc.) o cost computation and billing function o the communication infrastructure: SWIFT FIN messages via a common SWIFT address, secured internet Business to Business (B2B) and B2C communication, using XML format o an accounting interface

Global positioning module

o the ability to interface with collateral management systems external to the system according to the invention in order to integrate or import collateral held and managed outside said system according to the invention o construction of a collateral pool, be it collateral managed by the system according to the invention or by an external collateral management system interfaced to the system according to the invention

o settlement of open market operations (MROs, LTROs, fixed-term deposits) o the granting of credit freezings, i.e. other credits covered by the pool of collateral o link with a payment system (such as TARGET): connected payments, consultation of payment capacity and management of credit lines o real-time global positioning, i.e.:

* monitoring the coverage of all outstanding credits by collateral

* credit substitution within the possibilities of the available collateral

* real-time update of credit line with the possibility of applying a trigger point or minimum amount o some standard reporting

Securities module

o a mirror copy of the ECB eligible assets database, including retrieval of the full set of eligible assets from the ECB. This EADB mirror is extended with extra operational features for STP processing o processing incoming collateral mobilisation instructions and related messages o eligibility checks, e.g. on the eligibility of the security and the SSS o creation of CCBM messages in the capacity of CCB o settlement of transactions for domestic and Home Central Bank (HCB) operations o valuation of securities, using a hierarchical number of sources, including valuation hubs such as the Banque de France / Bundesbank valuation hub referred to above o custody tasks, e.g. corporate actions as redemptions and coupons, tax issues

o matching with statements of SSS and CCB holdings o some standard reporting (e.g. for close-link checks)

Credit claims module

o a credit claims register. Counterparties can post eligible credit claims in the register using SWIFT (ISO 15022 compliant) messages. The registration comes with some on-line validations and feedback to the counterparts o processing incoming mobilisation instructions and related messages o eligibility checks o creation of CCBM messages in the capacity of CCB o settlement of transactions for domestic and HCB operations o valuation of credit claims (nominal value minus haircut) o matching with statements of holdings coming from CCBs o some standard reporting

In its preferred embodiment the system according to the invention includes monitoring tools which are split over two modules: o for NCBs they are included in the basic module o for counterparties a separate optional web browser module is available.

The system according to the invention most preferably involves multiple interfaces to import basic data in the EADB mirror: o the eligible assets database of the ECB o price feeders (e.g. ISMA) o SSSs or other sources for collecting data on eligible securities to report to the ECB eligible assets database.

For data on transactions, the system according to the invention interfaces mainly with SWIFT for interaction with SSSs, NCBs and credit institutions and also with TOP for tendering results of reverse operations.

The system according to the invention thus consists of a Client/Server application which is executed on a multi-tier architecture based on Internet- technology.

Figure 1 gives an overview of a preferred infrastructure of the system according to the invention, all parts of which are hosted centrally.

The user interface may appropriately be developed in HTML and Javascript and run on any browser supporting these languages. The front-end does not have to run directly on the users' workstations browsers but can run on an intermediate server centrally hosted at the Terminal Services server, on which users open their own system sessions (Terminal Services clients).

Confidentiality of the interactive session may very suitably be implemented via two levels of encryption: o encryption of the terminal services session itself; o encryption of the network tunnel through which the terminal services session traffics are being exchanged.

Strong authentication of users can suitably be performed through a token- based system.

Concerning the middle tier, the application may suitably be based on IBM Java/WebSphere which holds the presentation and business logic of the application.

For reasons of reliability, each NCB preferably has the same unique source code that is used in a database per NCB. The advantages are: o reducing development efforts o simplified maintenance of the source code o easy processing of requests for change o cost-sharing by the member NCBs o testing can be done in one central test environment.

DB2 on z/OS may suitably be used as the central data store. For reasons of availability, confidentiality, flexibility and performance, each NCB's data are preferably stored independently in a separate database, except for the master file of assets (EADB mirror) that is preferably located in a different database shared by all NCBs. All databases have the same specifications.

DB-communication between the application- and the data-tier is preferably handled through standard JDBC using IBM DB2/Connect type-4 driver.

The SWIFT interface of the system according to the invention is preferably set up through the Swift Alliance Access module (SAA) - hosted centrally - to automatically send and receive Swift messages.

The communication between the SAA and the system according to the invention is preferably realized by means of the IBM WebSphere MQ product.

Incoming Swift messages are, preferably, immediately processed by a CICS driver on z/OS.

A B2B gateway (hub) hosted centrally is preferably used as the central point for exchanging information between the system according to the invention and the back-end systems of the member NCBs on the one hand, and price feeders on the other hand.

Data exchanged between the B2B hub and member NCBs are secured by the use of encrypted tunnels (IPSec) and digital signature of all messages (S/MIME signed with centrally provided and managed certificates).

With regard to the communication with member NCBs, the infrastructure on their premises as well as the connections between them and the provider of the system according to the invention are preferably not part of the actual system according to the invention. Member NCBs should preferably be free to choose their own client, the protocol and the type of connection (Internet or leased lines) they want to use to interface with the B2B hub.

As an option, the provider of the system according to the invention could preferably deliver to the member NCBs a B2B application implementing the flows of the system according to the invention on their side (B2B spoke). This generic gateway could be configured to interface with the NCB's own back-end.