Banks Launch Nostro Service

ANZ Bank, Barclays, JP Morgan Chase and Mizuho Corporate Bank have tapped Cable & Wireless Real Time Nostro as the standard infrastructure for sharing nostro account information between financial institutions and other organizations. The four clearing banks will act as a channel to market for the service and supply data for it.

Cable & Wireless Real Time Nostro is a subscription-based, online service providing financial institutions with a real-time, consolidated view of international transactions and balance details. It is designed to bring together all the major banks that provide nostro clearing services on a single-browser access system.

A nostro account is a foreign currency account maintained to facilitate clearing of funds for a correspondent bank in non-domestic currencies.

Cable & Wireless Real Time Nostro was developed in collaboration with the banking community through a working group initiated by Cable & Wireless to discuss the adoption of new market practices for the delivery of real-time information to the global financial community. Among this group are ANZ, Barclays, JP Morgan Chase and Mizuho Corporate Bank, which collectively account for a substantial share of the world's financial transactions. The inaugural meeting of the working group took place at SIBOS 2002 in Geneva.

Scheduled to be operational in October, the Cable & Wireless service provide banks with greater visibility of cash movements globally across all types of accounts held with nostro account agents, including those for foreign exchange, commercial payments and securities settlements. The service is enabled by software developed by Gresham Computing.

Automating the reconciliation process enables banks to limit the time, resource and margin of error involved in manually reconciling multiple statements that are delivered on paper at the end of the working day. Instead, users will have access to a single compilation of all their accounts, constantly updated in real time.

"This ground-breaking initiative assists the global financial community to reduce risks and exposures in the 24 hour management of payments and collateral, via a single view of nostro positions in each currency and across agent bank services," according to Richard Pattinson, senior director at Barclays Bank and chairman of the SWIFT Real Time Nostro Account Information Steering Group.

The provision of account transaction information in an industry-standard format promotes intraday liquidity management and resolution of account queries. "Payments reconciliation within the day, while each domestic currency market remains open, is a major step forward for banks now operating in a continuous global market," added Pattinson.

Significant savings can be realized through the ability to manage cash flows across currencies and time zones intraday rather than after the markets have closed, or even days later, as well as by integrating the service with existing back office systems.

"The Cable & Wireless Real Time Nostro service will allow us to manage liquidity more closely across the many accounts we maintain with other banks around the world," noted Barry Holland, director of treasury operations at Barclays Capital. "Barclays wants to be at the forefront of efforts to limit the risks in international transactions."

Added Thomas Halpin, vice president and head of global clearing product management at JP Morgan Treasury Services, "Our clients see maintenance of different settlement accounts with different banks as a major cost. Allowing our customers real-time access to data in accounts we keep, as well as accounts at other banks, provides opportunities to use cash more efficiently while minimizing risks."

Said John Murphy, head of international payments at ANZ Bank, "The ability to deliver customer data real-time within a framework of globally agreed data standards gives us a platform to develop new and innovative business solutions for our clients, both banks and corporates."

Noting that the yen is a major currency in international financial transactions, Kazuo Kamio, head of settlement and clearing services at Mizuho Corporate Bank said, "The provision of real-time information to our customers shows we are committed to international efforts to improve transparency of settlement and risk management in Japan."

By allowing banks to send and receive information using a secure infrastructure, Cable & Wireless Real Time Nostro service is intended to encourage other banks to provide account data. Data provision is based on industry-standard XML and is compatible with developments in both Internet based applications and SWIFTNet, enabling banks to move away from batch-based overnight processing of transactions to a more interactive way of managing cash flows.

For example, a transaction error that currently would be corrected up to two days after settlement is due could be repaired and posted to a customer account before close of business on the day of settlement. Aggregation of account data will allow banks to identify risks such as unforeseen overdrafts and potential defaults within the settlement day.