02 MayIntraday Liquidity – Trap #3. Challenge before agreeing to pay

The sum of the parts may not make the whole

Let’s assume you have talked to your Nostro. Yes, they will supply MT910’s and MT900’s and yes, you can agree on a price that is not daylight robbery. Wait! Do not sign-up. A couple of things to check on before you put pen to paper.

For each cash account you are looking at, you need to understand the Nostro’s standards. Whilst a SWIFT message is a standard, exactly how and when it is used is anything but. Questions to ask:

For every account: Is there an MT910 for each credit and an MT900 for each debit? Does that include any fees the bank debits you, including interest expense?

For the cash accounts that are coupled to any securities processing: is there an MT900/910 for the cash side of each settled trades? What is the practice for income events, such as a coupon or dividends?

Double check: ask for a periodic MT942, which is an interim statement and has a balance on it. These are at best available every 30 mins. At least at the beginning, you need these too.

Timing is everything

As of May 2015, the MT900 and 910’s do not have a time stamp on them. This is being added by SWIFT later in 2015. But, then the banks need to fill this in. In the meantime, time of receipt is a valid proxy.

But, that is a side issue. What you need to know is how quickly the correspondent sends out the messages. Is it really “real-time”; you receive CHF 55mm from Morgan Stanley. At 10:05 CET this is credit to the UBS account in the payments system. At 10:06 UBS credit this to your account. What happens next? Is an MT910 generated and sent immediately or is it driven by a batch or timed process? Good war story from a colleague this week; one multi country Nordic bank can only send MT900’s and MT910’s hourly. Not a total chocolate teapot but close.

Lessons to be Learned: However much SWIFT is a standard and messages formats are standardised, exactly how and when banks generate these things is not standard. Intra-day will not always mean real-time.

Securities depots and Nostros are two distinct disciplines. Even if they have “cash” in common, the custodian may well not treat that cash account the same as a Nostro. Messaging services will vary.

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