Structured Financial
Messaging System (SFMS)
Payment and settlement systems play a vital
role in the efficient functioning of the financial system. IDRBT Hyderabad
developed and launched the Structured Financial Messaging System on December
14, 2001. It is messaging system that
can be used for speedy funds transfer and for all purposes for secure communication
within the bank (inter-bank) and between banks (intra-bank). SFMS is an Indian
standard similar to SWIFT (Society for World-wide Interbank Financial
Telecommunications) an international messaging system used globally for
financial messaging. SFMS is an EDI (Electronic Data Intervention) for banks
and it uses INFINET as the communication medium. This system is connected to
banks gateways with HUB located at IDRBT, Hyderabad
The inter-bank messaging is useful for
applications like Electronic Funds Transfer (EFT), Real Time Gross settlement
System (RTGS), Delivery Versus Payments (DVP), Centralized Funds Management
System (CFMS) etc.
Security aspect of SFMS
Authentication, Confidentiality,
Non-Repudiation, Integrity are the main security aspect of SFMS. Security is
taken care by using Public Key Infrastructure (PKI). Under Public Key Infrastructure each entity has
a public key and a private key. Messages sent through SFMS are digitally
signed.
Advantages of SFMS
SFMS reduces transaction time, cost and make
trade finance operations more efficient.
The electronic handling of communications reduces considerable reduce
risk of fraudulent transactions. SFMS facilitates inter-bank and intra-bank
transactions in cash and securities, in treasury operations, forex
transactions, Letters of Credits and in negotiation of bills drawn against the
Letters of Credit. With SFMS banks would be able to avoid paper based
transactions.
1. The
Centralised Funds Enquiry System (CFES) and
2. Centralised
Funds Transfer System (CFTS).
Centralised
funds management system provides a centralised view of
balance positions of the accounts maintained by banks with RBI at various
locations. It enables banks to operate
and transfer funds from one account to another account maintained with
different Deposit Accounts Department (DADs).
Only those banks who maintain current account
with the Deposit Accounts Department (DAD) of RBI and are the members of
INFINET can become the member of this system. Each member is required to
install on its own cost and maintain in good order computer/s, servers,
telecommunication equipment and other electronic equipment as required /
prescribed for the purpose. All funds transfer messages received by the Central
system for debiting of any current account are digitally signed. Each message
is identified by a unique identifier for tracking at a future point of time.
On the successful completion of a transaction,
the originator of the message is informed by the Bank Level Funds Management
System (BLFMS) / Local Banks Funds Management System (LBFMS). The CFMS normally
operates on all days on which at least two Deposit Accounts Departments of
Reserve Bank of India
The Centralised
Funds Transfer System (CFTS) provides services through:
- Apex Level Server (ALS) built in the main frame computer maintained at Mumbai.
- Local Funds Management System (LFMS): The facility is provided by those Regional Offices of RBI which have the Deposit Accounts Department (DAD).
- Bank Level Funds Management System (BLFMS): RBI provides the soft ware to CFMS members for the use of Treasury Department / Central Accounts Department.
- Local Banks Funds Management System (LBFMS): RBI provides this facility to the CFMS members for accessing local DAD.
Negotiated
Dealing:
Negotiated Dealing System (NDS) is an
electronic trading and biding plateform for Govt. dated securities,
Treasury Bills, call/notice/term money, commercial paper certificate of
deposit; forward rate agreements/interest rate swaps, Repurchase
Agreements (Repos) under Liquidity Adjustment Facility etc. All
dealings are done through screen (computer) which has anonymous order matching.
NDS provides interface to Securities Settlement System (SSS) of Public Debt
Office (PDO) RBI, Clearing Corporation of India (CCIL) and finally the RTGS. It
disseminate information on trades and foreign
exchange markets on a real time basis
and helps in achieving paperless and
straight through settlement of transactions. The system became
operational from February 15 2002.
NDS has brought
significant improvements in transactional efficiency and transparency.
It uses INFINET
network as communication backbone. It facilitates RBI in
settlement of deals done in govt. securities and treasury bills. All outright
and repo transactions in Treasury Bills and Government dated securities
(Central and State governments) are settled through NDS. All inter-bank
money market deals are done through the NDS and reported to CCIL.
Negotiated security transactions once reported
on NDS. Once a deal is approved it can not be revoked in the system.
However, prior to the settlers' approval, either the dealer or the settler of
the dealing member can reject the deal entered into the system.
The securities clearing against assured payment
is handled by Clearing Corporation of India Ltd (CCIL), a specialised institution which started operations on
February 15, 2002 along with the commencement of operations of RBI’s Negotiated
Dealing System (NDS).
CCIL guarantees settlement for
trades done in government securities including Treasury Bills, Repos through the
process of Novation.Once a trade is done/reported over NDS it can be settled either
though CCIL or directly through RBI- SGL. With the implementation of NDS the
system of submission of physical SGL transfer form in respect of deals done between members has been discontinued. All big banks, primary
dealers and satellite dealers (Gilt Dealers) maintain SGL account with RBI at
Mumbai. The account facilitates investors a simple and indirect form of investment
in government securities.
All inter-bank money market deals and negotiated
security transactions are also reported to CCIL. CCIL provides straight through
processing (STP) for USD/INR, and CCIL as an intermediary settles inter-bank
USD/Rupee deals on net basis, so that individual banks need not exchange
payments for each transaction.
Settlement through CCIL is done on Delivery Versus Payment II (DVP II)
mechanism. DVP II refers to settlement of securities on gross basis (trade by
trade basis) while funds are settled on net basis. Settlement through RBI-SGL
is through DVP-I mechanism i.e.
settlement of both securities and funds on gross basis. The securities clearing
against assured payment is handled by Clearing Corporation of India Ltd. (CCIL)
through the process of Novation.
The NDS membership is open to banks, primary
dealers, mutual funds, financial institutions and insurance companies, who
maintain SGL account with RBI, and also those who have constituent SGL accounts
through banks / depository institutions. Brokers are not eligible to become members of
NDS. Subsidiary
General Ledger Account is maintained in the books of Public Debt Offices with
Reserve Bank of India
Novation:
Section 62 of ‘The Indian Contract Act, 1872’ deals with the effect of novation, rescission, and
alteration of contract. As per Sec.62 ‘If the parties to a contract agree to
substitute a new contract for it, or to rescind or alter it, the original
contract need not be performed’. Thus, Novation is the act of either replacing an
obligation to perform with a new obligation, or replacing a party to an
agreement with a new party contract remaining the same. When a trade is reported to CCIL for
settlement, CCIL becomes the central counterparty to the trade by replacing the
trade between the two members. This means that CCIL will act as a buyer to the
seller of security and simultaneously will act as a seller to the buyer of the
security. This in effect remove the credit risk faced by members’ vis-à-vis
their counterparties.
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