Enhanced Batch Processing in RITS – January 2020 2. Overview Of Batch Settlement In RITS

2.1. Batches in RITS

RITS's batch settlement facility offers two models of batch settlement:

  • Settlement-only Batch: In this model, a batch comprising a group of interbank debits and credits is sent to RITS for settlement by a Batch Administrator. In settling the batch, RITS checks if the paying Members have sufficient funds in their Exchange Settlement Accounts (ESAs). If so, RITS settles the batch by simultaneously debiting the ESAs of the paying Members and crediting the ESAs of the payee Members in the batch.
  • Reservation Batch: In this model, funds are first reserved in the ESAs of the Members who are payers in the batch. Following completion of further upstream processing, the Batch Administrator requests settlement of the Reservation Batch. RITS then settles the batch. In doing so, it simultaneously debits the ESAs of the paying Members for the amounts previously reserved and credits the ESAs of the payee Members. Settlement of the batch is almost instantaneous due to prior reservation of ES funds.

In batch processing, the settlement instructions that make up each batch are settled simultaneously. Both models require that all paying and receiving participants in every batch are Members (active ESA holders).

In this document, where principles concerning both models of batch settlement are discussed, the term ‘Batch’ is used. Where a specific model of batch settlement is discussed, the relevant term, i.e.,‘Settlement-only Batch’ or ‘Reservation Batch’, is used.

2.2. Responsibilities of Batch Administrator

The responsibilities of a Batch Administrator in relation to an Upstream Business, participant Members, and RITS are set out below. Note that the model upon which this discussion is based may not be applicable to all businesses.

The Upstream Business Operator would assemble the financial transactions arising from an Upstream Business and make these available to the Batch Administrator. The Upstream Business Operator might also be responsible for coordination with related parties.

The Batch Administrator (who may also be the Upstream Business Operator) receives data on financial transactions from the Upstream Business Operator and produces for each batch to be settled across RITS:

  • a schedule of individual settlements (i.e., at the customer level), arising from the Upstream Business, for each participating financial institution. This is sent to each institution at an agreed time prior to the agreed batch settlement time;
  • the net settlement position (obligation to pay or receive) of each financial institution arising from the above schedule, which would be sent to each financial institution with the schedule. For a Member, this figure would be its net position to be settled across RITS. For a financial institution without an ESA, this would be its position with its Member (or its settlement agent in RITS), and would have been included on the schedule of that Member as a customer entry; and
  • a schedule containing the net interbank obligation for each participant Member that is to be settled via a batch. Depending on the business arrangements for each batch, these figures would be entered into RITS by the Batch Administrator to be settled simultaneously via one of the two batch settlement processes available in RITS: Settlement-only Batch or Reservation Batch.

The Batch Administrator is also responsible for other communications with the upstream business operator and financial institutions.

RITS accepts and validates the batch data and effects interbank settlement. It provides settlement confirmations to Batch Participants (via screen enquiries and, optionally, SWIFT Post-Settlement Advices from the RITS Automated Information Facility (AIF)) and the Batch Administrator and provides functionality for Members to monitor and manage their ESA positions and interbank obligations, including those in batches.

Members manage their Settlement-only Batch obligation in RITS in the same way that they manage other payments in RITS within the agreed operational arrangements for settlement. Reservation Batch processing does not allow Members to control the timing of settlement in RITS. These batches settle almost instantaneously due to prior reservation of ES funds.

Upon receipt of advice that the batch has settled, Members and other participant financial institutions post the upstream transactions to customers' accounts.

For a non-Member financial institution, its net obligation will be included in the position of its Member to be settled across RITS.

2.3. RBA Requirements of the Batch Administrator

Batch Administrators must obtain the approval of the RBA. In order to obtain approval, prospective Batch Administrators must:

  • be sanctioned by the Upstream Business Operator and Batch Participants to perform this function;

  • provide evidence of operational capacity to manage and implement the provision of:

    – netted interbank obligations to RITS, by any of the methods approved by the RBA; and

    – advice of obligations of Batch Participants to those participants in the manner stipulated in the operating procedures for that batch arrangement;

  • prove their operational capacity with satisfactory testing results of the batch arrangement with the RBA, Batch Participants and any Upstream Business Operator;
  • satisfy the RBA that appropriate operational and contingency procedures will be in place to ensure the efficient operation of the batch arrangement; and
  • satisfy the RBA that appropriate business rules and other legal arrangements will be in place to support the batch arrangement.

In order to obtain approval, prospective Batch Administrators must satisfy stated criteria and requirements that will be advised by the RBA and may vary depending on the nature of the batch. Refer to the information on the RBA's website, the Eligibility Criteria for the Batch Administrator.