04:44 May 30, 2020
CCILCCIL > FAQ > Forex Settlement
 

1.

What is the Forex settlement system that CCIL follows?

2.

What are the pre-requisites for seeking Forex membership?

3.

What is the mode of settlement through CCIL?

4.

What are the advantages of Payment versus Payment (PVP) mode of Settlement through CCIL?

5.

What is the process of Novation?

6.

How is the connectivity between CCIL and the members established?

7.

How will the members know if the files have not been successfully sent to CCIL through FRS?

8.

How will the member re-report the trades failed due to technical validation or incorrect format?  

9.

What are the basic business validations that CCIL does after the data is received in the system?

10.

What are the types of trades that are currently settled through CCIL?

11.

What are the types of trades reported to CCIL?

12.

What is the cut-off time to report trades to CCIL?

13.

What is the time window for online exposure check in Forex Settlement Segment?

14.

Do banks have to report trades done on Fx-Clear, Fx-Swap or FX-Retail Dealing platform of CCIL?

15.

Are trades done on Fx-Clear, Fx-Swap or FX-Retail Dealing platform of CCIL subjected to Exposure Check?

16.

When and how can a deal be amended or cancelled?

17.

How is the Exposure verification done?

18.

What is the cut-off time for covering limit excess/pending exposure trades?

19.

What is Cash Settlement process?

20.

What are the various options to cover limit excess/pending exposure trades?

21.

What is pre-funding and explain the process of process of Pre-funding in Forex Settlement Segment?

22.

What is an Inside/ Outside Swap?

23.

How will a member do the reconciliation of deals settling through CCIL?

​24.

Process Flow for Forex Clearing and Settlement

25.

What is the cut-off time for receiving US Dollar obligation by CCIL? What happens if the funds are received post the cut-off time?

26.

What is the process of Shortage Handling?

27.

What are the CCIL charges/penalty levied in case of a default?

28.

What is Shortage Allocation Process?

29.

What are the various reports available for members?

30.

What are the CCIL settlement charges in USD/INR Segment?

31.

What is a direct debit mandate (MT 204/MT 202R)? How will it help the member Banks?

32.

What is loss mutualisation on US Dollar?




 

1.

What is the Forex settlement system that CCIL follows?

CCIL runs a multilateral netting system for forex inter-bank transactions that nets the members payments and receipts in a currency, though they are due to or from different counterparties and settles the net position on a payment versus payment (PVP) basis in both the legs of the transactions. CCIL becomes the central counterparty to every accepted trade through the process of novation.

 

 

2.

What are the pre-requisites for seeking Forex membership?

The following eligibility criteria shall apply for grant of Membership to the “FOREX” segment of Clearing Corporation: The applicant shall –

  1. be an Authorized Foreign Exchange Dealer;
  2. have a current account with the Reserve Bank of India for settlement of transactions in Indian Rupees;

      c.  have INFINET connectivity;

  1. have a Nostro Accounts(s) with its Correspondent(s);
  2. have adequate risk management systems and policies in place and qualified personnel in its employment;
  3.  should be a member of CCIL’s Securities Settlement Segment.

 

 

3.

What is the mode of settlement through CCIL? 

 

CCIL adopts the Payment versus Payment mode of Settlement. 

 

 

4.

What are the advantages of Payment versus Payment (PVP) mode of Settlement through CCIL? 

The key benefits on account of a PvP model to members are:

1. Elimination of principal/credit risk,

2. Counterparty limits need not be maintained by members on acceptance of trade for guaranteed settlement by CCIL,

3. Banks can trade with additional counterparties, which may also lead banks to consider counterparties that they have not traded with previously.

 

 

 

5.

What is the process of Novation?

"Novation" is the act of Clearing Corporation interposing as Central Counter Party upon acceptance of the trades by it by replacement of the existing obligations with the new obligations. The netting scheme adopted by CCIL is netting by novation where the bilateral relationship between the two participants/members is substituted with bilateral contracts between each participant/member and CCIL.  The net positions of all member banks, both in INR and USD, are computed by a multilateral netting of all accepted trades. Novation takes effect from the moment a trade is accepted by CCIL for settlement.

 

 

 

6.

How is the connectivity between CCIL and the members established? 

The connectivity between the Member bank's back office and CCIL via INIFINET is established, which is the domestic payment system network and each bank is connected to it via a Gateway Server. The Member Banks have to install a utility called File Routing System (FRS) utility on this gateway server through which the banks can transmit data in IFN300 format to CCIL.  The IFN 300 files transmitted are text files with the file extension as .ccil. The FRS utility software developed by CCIL can be downloaded by the member banks from the CCIL report browser.

 

 

7.

How will the members know if the files have not been successfully sent to CCIL through FRS?

Trades that fail technical system validations are not taken into CCIL's system for validations. The trades that are rejected outright because of incorrect format or technical failures are placed in a separate sub-folder called UINR under the received folder in the FRS application. Member has to check for the reason for rejected deals on account of technical validation under the path C:/CCIL/Receive/UINR. 

 

 

8.

How will the member re-report the trades failed due to technical validation or incorrect format?

Members have to re-report the trades as 'NEWT' and can use the same reference number as these trades have not been taken into CCIL's system.

 

 

9.

What are the basic business validations that CCIL does after the data is received in the system? 

 

CCIL will perform the following validation checks:
  • 1. Both the parties to the transaction are active members of forex settlement segment of CCIL.
  • 2. The message is not duplicated.
  • 3. Amount Conversion is correct.
  • 4. Original deal exists for amend/cancel deal
  • 5. Counterparty Ids  are valid
  • 6. Currency traded is valid
  • 7. Trade date is not greater than current day
  • 8. Settlement date is not a holiday
  • 9. Trade date is not Saturday or Sunday
  • 10. Settlement date is not less than trade date or reporting date
  • 11. Amendment received is not for an already accepted trade.
  • 12. Date Mismatch
  • 13. INR amount should be round figure.
  • 14. SWAP trade is rejected due to unique common reference number violated.

     

 

 

10.

What are the types of trades that are currently settled through CCIL?

 

CCIL settles all Forex inter-bank Cash, Tom, Spot and Forward USD/INR transactions.

 

11.

What are the types of trades reported to CCIL? 
 

All inter-bank forex trades concluded bilaterally through various dealing platforms are reported to CCIL. However, trades done on CCIL's FX-Clear (Order Matching), Fx-Swap &  FX-Retail trading platforms (C-SPOT)  need NOT be reported as these trades would directly flow to CCIL's settlement system.

 

 

 

12.

What is the cut-off time to report trades to CCIL?

The cut-off time for reporting Spot and Forward deals is 1:30 p.m. on S-1 day i.e. one day before the settlement day and  the cut-off time for reporting of Cash and Tom deals is 1: 30 p.m. on S day i.e. on the settlement date.

 

 

 
 

13 

 

 

 

 

 

 

 

 

 

14.

 

 

 

 

 

 

 

 

 

15.

 

 

 

 

 

 

 

16.

 

 

 

 

 

 

 

 

 

 

  

17.

 

 

 

 

 

 

 

 

 

 

 

18.

 

 

 

 

 

 

 

 

 

 

 

19.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20.

 

 

 

 

 

 

 

 

21.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What is the time window for online exposure check in Forex Settlement Segment?

 

The time window for online exposure check in the Forex Settlement Segment is from 8:00 a.m. to 8:00 p.m. IST. Trades matched post the online session closure of 8:00 p.m. shall be subjected for Exposure Check on the next business day.

 

 

 

Do Banks have to report trades done on FX-Clear, FX-Swap or FX-Retail Dealing platform of CCIL?

Banks need not report trades done on FX-Clear, Fx-Swap or FX-Retail Dealing System(C-SPOT) ( Interbank leg) of Clearcorp Dealing System. These trades shall directly flow from the trading platform to the CCIL's with CCIL as the counterparty.

 

 

 

 

 

 

Are Trades done on Fx-Clear, Fx-Swap or Fx-Retail Dealing platform of CCIL subjected to Exposure Check?

 

Trades done on FX-Clear/FX-Swap and/or Fx-Retail Dealing System are subjected to Exposure Check on a post trade basis.

 

 When and how can a deal be amended or cancelled?

 

A deal which has already been accepted by CCIL for settlement cannot be amended. However, a trade can be cancelled by the member before the Cut-off time i.e. S-1 day for Spot and Forward and S day for Cash & Tom trades) even if the same has been accepted by CCIL. The cancellation for an accepted or matched trade has to be received from both the counterparties.

Further, any unmatched deal (NEWT, AMND and CANC) can be unilaterally cancelled by reporting CANC by the member.

 

 

 

How is the Exposure verification done?

 

All matched trades including trades received from Forex Dealing systems and netted positions, if any, received from Forex Forward segment shall be subjected to checks for adequacy of margin and limit checks for both counterparties to the trade. Trades which pass through Exposure and margin check shall be accepted for settlement by CCIL. Exposure check for all trades is carried out on an online basis from 8:00 a.m. to 8:00 p.m. on all business days. Trades which result in a breach either due to inadequacy of Exposure Limits or due to inadequacy of margins shall remain in queue and be eligible for consideration for exposure check.

 

What is the cut-off time for covering limit excess/pending exposure trades?

Banks that have availed higher limits are required to bring down their position within the Exposure Limit by 11:00 a.m. on S day else the excess position shall be Cash Settled.

Other trades in Pending exposure have to be covered by 1:30 p.m. on S day else the same shall be rejected at cut-off.

 

What is Cash Settlement process?

A Member that has availed higher limits or has Forex Forward position in pending exposure status is required to ensure that the positions are within the Exposure Limit on the settlement date by 11:00 a.m.

In the event the Member fails to bring down its position within the Exposure Limit by 11:00 a.m on Settlement date., the position in excess of the Exposure Limit shall be Cash Settled.

1. The cash settlement shall be effected by way of allocation of such positions first to the Members breaching Exposure Limits in the counter currency on S day at the notified time, to the extent such allocation is possible without any breach of exposure limit in the counter currency.

2. CCIL shall allocate the balance amount, if any, to the top ten Members having highest receivable position in the currency of breach. Allocations shall be in proportion to the net receivable position of such Members.

3. The deals arising out of Cash settlement shall be with CCIL as counterparty. Such Members to whom allocations have been made shall be referred as Allocatee Members.

4. Allocation advice would be sent to both, the Allocatee Members and to those Members whose sale positions are cash settled, by CCIL after the allocation has been effected.

5. a compensation of 1 paisa would be added to the rate at which the Cash Settlement is effected. An allocatee Member may buy U S Dollar/INR, to the extent of allocation, from the market for the same settlement date and if it has done so, it can upon intimation to CCIL, claim that the allocation of the sale position to it be effected using the rate at which it has purchased U S Dollars/INR as increased/decreased by an amount per USD. Such intimation must be received by the CCIL in the format specified before 12:30 p.m. on settlement date for the position considered for allocation.

6. However, if the rate at which the Allocatee Member has bought US dollars/INR as above is identified as an outlier by CCIL or the Allocatee Members do not notify any purchase of US dollars/INR, INR/USD Cash rate as polled by CCIL on S day shall be used as increased by an amount per USD

7. The Member whose sale positions are cash settled due to breach of Exposure Limit on S day shall be liable to make good any amount of loss/shortfall arising out of cash settlement.

 

What are the various options to cover limit excess/pending exposure trades?

Banks have the following options to cover the limit excess or pending exposure trades:

1. Report off-setting buy trades in the currency of breach

2. Opt for S/S-1 day pre-funding in the currency of breach

3. Opt for Inside/Outside Swap.

 

What is pre-funding and explain the process of process of Pre-funding in Forex Settlement

Segment?

Prefunding is an option given to members to avoid trades being rejected on account of exposure

violation. Amount in excess of Exposure limit can be prefunded by the member by transferring the

USD or INR  to CCIL’s account, within the specified cut-off time, which will enable CCIL to enhance

Exposure Limit temporarily in that currency for a settlement date.

Members desirous of availing temporary enhancement/Pre-funding option have to give a request to

CCIL via Enotice.

USD Prefunding:

Banks have the following options in USD Pre-funding:

1. Same Day Prefunding: Member shall advise the USD amount for which temporary enhancement is sought and ensure that the funds are credited in CCIL’s account with its Settlement Bank before the cut off time of 13:30 hours IST on the settlement day for which additional limit is required. Exposure limit for a bank shall be enhanced only after the credit is received by CCIL in its account with the Settlement Bank. Banks are required to put “S-1 Prefunding “in field 21 of the relevant MT202 payment instruction.

                                                                                       

2. S-1 day prefunding: Member shall ensure that the USD funds are credited in CCIL’s account with its Settlement Bank one business day before the settlement date for which additional limit is required. Exposure limit for a bank shall be enhanced only after the credit is received by CCIL in its account with the Settlement Bank. Funds received up to 20:00 hrs IST may be invested subject to investment avenues being available and if invested, interest shall be passed on to the member, net of cost, charges and taxes. Banks are required to use their “Member id” in field 21 of the relevant MT202 payment instruction.

 

3. The charges levied towards handling cost on Prefunding are as under:

Particulars

Handling Charges in USD

Interest earned upto USD 50

5

Interest earned more than 50 and upto 100

10

Interest earned more than 100 and upto 1000

15

Interest earned more than 1000

20

 

INR prefunding

Member desirous of availing temporary enhancement/Pre-funding in INR have to give a request to CCIL via Enotice. Banks have the following options in INR Pre-funding:

4. Same Day Prefunding: Member shall ensure that the INR funds are credited in CCIL’s RTGS account before the cut off time of 13: 30 hours IST on the settlement day for which additional limit is required.

5. S-1 day prefunding: Member shall ensure that the INR funds are credited in CCIL’s RTGS account one business day before the settlement date for which additional limit is required. However, these INR Funds shall not qualify for any deposit interest.

Please be advised that the Exposure limit in INR for a bank will be enhanced only after the credit is received in its RTGS settlement account by Clearing Corporation.

 

 

What is an Inside/ Outside Swap?

 

Inside/Outside Swap (I/O Swap) allows a member to cover  position in breach of its exposure limit by undertaking a swap trade for the same settlement date with another member. The buy leg of the deal for the member is reported and settled within CCIL thereby reducing the bank's net sale position. The sell leg will have to be settled by the bank with the respective counterparty outside the CCIL system.  This approach helps ensure settlement of all inter-bank deals within CCIL by bringing about a reduction in banks' settlement exposure.  It also leaves the member's FX positions unchanged with a neutral exchange rate.  The choice whether to enter into such a swap or not is up to the bank.

 

How will a member do the reconciliation of deals settling through CCIL?

 

Banks can reconcile the status of their deals on T day itself, taking note of all Unmatched, Overexposed and Accepted deals, the details of which are available in the Deal Status Report in the IRIS online system.

Accepted:  Deals with status ‘Accepted’ are accepted for settlement by CCIL.

Pending Match: This status can change up to cut-off batch on S-1 for Spot and forwards and up to cut-off batch on S day for Cash and Tom deals. Spot and forward deals which continue to be unmatched on S-1 after the cut-off batch will be rejected. Cash and Tom deals which continue to be unmatched till the cut-off batch will be rejected on S day.

Pending Exposure deals: The pending exposure deals will be carried forward till S day and if an offsetting buy in the currency of breach is reported by the member, then the pending exposure trade would be accepted for settlement.

 

Process Flow for Forex Clearing and Settlement 

 

Clearing process:

 

Trades/Deals are received by CCIL from the Member Bank's back office through File Routing System (FRS) in the form of IFN 300 (Annexure I). The connectivity between the Member banks back office and CCIL is via the INFINET.

Trades that pass the validation check and are matched, are subjected to online exposure check.

There are three batches being run during the day viz:

 

Cut-off Batch: This batch is processed at 1:30 p.m. This is the cut-off time for receiving trades/deals from member banks for spot and forward trades to settle the next day, and for cash and tom trades to settle the same day. Spot/Forward Trades which are pending exposure on S-1 day would be carried forward till S day. The banks have the option of pre-funding on S-1 day for the trades pending exposure. Banks can also undertake an In/Out Swap on a Cash & Tom basis, to enable the deals pending exposure to settle through CCIL. Spot & Forward deals which are lying unmatched for value next day (on S-1 day) and Cash & Tom deals for value same day (on S day) will be rejected at this batch. All trades which are in breach of exposure limit would be rejected in this batch for value S day.

 

Netting Batch: Members receive the Final Net Position Report in respect of Trades accepted for Clearing and Settlement by 1:45 p.m. on S day. Obligations contained in the Final Net-position Report shall constitute binding and conclusive confirmation of the respective Member’s obligations. The obligations of the respective Members so determined shall be final and irrevocable.

 

Forex Forward Netted Position Batch: Outstanding forward trades accepted for settlement for a settlement day (S day) in the Forex Forward segment is netted member-wise two business days before the settlement day (i.e. S-2 day). The netted positions arising out of such forward trades are subjected to exposure check on S-2 day in this Forex Forward Netted position batch by 8:15 p.m. on S-2 day.

 

Settlement Process: The Member banks with a net debit (short) position in USD have to issue payment instructions (MT202) to their correspondent bank for credit to CCIL’s identified account. The cut-off time for receipt of USD to CCIL’s account with its settlement bank is 7:30 p.m. IST (9:00 a.m. EST) on the settlement date. Banks are required to put their Member ID in field 21 of the MT202 payment instructions.

 

For members who have opted for MT204/MT202R, CCIL will, on behalf of the member bank, send Direct Debit Message to Member’s Correspondent for the settlement obligation by 3:30 p.m. IST .

For Rupee settlement, the Power of Attorney to CCIL given at the time of admission enables CCIL to debit or credit the member’s current account maintained with RBI. Members have to ensure that their rupee account is funded with the amount that is due from them for each value date. Banks having INR receivable position shall receive INR, once the USD is received by CCIL in its account with its Settlement Bank within the cut-off time of 7:30 p.m. IST.

 

 

Window of Operations - Timings (all references to timings in these documents refer to Indian Standard Time unless otherwise specified)

PROCESSES

Timings

Forex Forward Netted Position

8:15 p.m.

Cut-off Batch

1: 30 p.m.

Netting Batch

 1:30 p.m.

Cut-off time to receive the USD Credits into CCIL’s account with its Settlement Bank.

7:30 p.m.

INR settlement cut-off time

7:30 p.m.

 

 

 

 

 25.

 

 

 

 

 

 

 

 

 

 

 

 

 

26.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27.

 

 

 

 

 

 

 

 

 

 

28.