SWIFT FOR TRADE September 2007, Bangladesh.

SWIFT FOR TRADE
September 2007, Bangladesh.
Contents

What is Swift
 What is BKE
 Swift Message / Categories of messages
 Structured and Free format messages
 Payment message in Details
 STP / Non STP payments
 LC / BG related Messages
3
SWIFT stand for
4
S
Society for
W
Worldwide
I
Inter Bank
F
Financial
T
Telecommunication
Swift History




5
Increase in International trade and commerce
after World War-II
Efficient Banking System for payment
mechanism with Security, Reliability and
Confidentiality was needed.
Computer and Telecommunication technology
came to rescue.
Co-operative organization SWIFT was born
Swift History

SWIFT is the industry-owned co-operative
 Established in 1973
 Head quarters at Brussels Belgium
 Common language for international financial
transactions
 Secure, Standardised messaging services
 Provides interface software
6
Swift Usages
7

Payments

Securities

Treasury

Trade
SWIFT in figures
208+
12,946,626
Avg Daily
Messages
Countries
Connected
8147+
Live Users
8
WHY SWIFT

Advantages of SWIFT

It is Highly Secured
 It is Highly Reliable
 It is very cost effective
 It is Standardized - accepted globally
 It
is a STANDARD SETTER
 Offer standardized web based trust service
and e-payments to corporate customers
active in B2B E-commerce
9
WHY SWIFT

10
Disadvantages of TELEX
 Insecure Transaction
 Slower transmission
 Susceptible to transmission errors
 Expensive
 Most transacting Bank is a SWIFT user and not
having test key arrangement for TELEX
SWIFT NET Architecture
11
SCP
SWIFT TRANSPORT NETWORK
SLICE
PROCESSOR
SP
SP
SP
SWIFT TRANSPORT NETWORK
RP1
REGIONAL
PROCESSOR
RP2
RP3
RP4
SWIFT TRANSPORT NETWORK
SWIFT ACCESS POINT
SAP
SAP
LTs USERS
12
SAP

It is a Gateway called Swift Access Point.
 Individual Users or Local Terminal connect
to SWIFT ACCESS POINTS (SAP)
 SAP Forwards Messages to RP using Swift
Transport Network
13
IRP / ORP

Input Regional Processor (IRP)

Control and Validation of all input message
 Input Session Number (ISN)


Generation of ACKS & NAKS to the users
Output Regional Processor (ORP)

Temporarily store output messages
 Controls message queuing and delivery
 Output Session Number (OSN)
 Delivery Monitoring
14
SLICE PROCESSOR (SP)
15

Message Switching

Long term storage

Generation of System Message
System Control Processor




16
Controls the entire Network
Organizing Recovery of the Network
Responsible for introduction of New
Software online
Two SCP center on SWIFT Network
1. U.S.A
2. Netherlands
PC CONFIGURATION – STANDALONE
SWIFT
COMMUNICATION LINK
PC
PC CONNECT
17
SWIFT
INTERFACE
CONFIGURATION – LAN
COMMUNICATION LINK
SWIFT
PC STAND. STN.
COMMUNICATION
STATION / Server
PC STAND. STN.
PC
18
PC
SWIFT
INTERFACE
SECURITY

SWIFT Security objectives
1.
CONFIDENTIALITY
•
2.
INTEGRITY
•
3.
Information and the associated services is accessible and
usable when needed
ACCOUNTABILITY
•
19
Information can be RELIED upon ABSOLUTE, ACCURATE
and VALID.
AVAILABILITY
•
4.
Information is disclosed to authorized persons at
authorized location only
Every individual authorized to use the system is
accountable
SWIFT SECURITY



20
Key Authentication Mechanism
Encryption
Checksum
Swift BIC




21
BIC stands for Bank Identifier Codes
It is the unique identification code of a particular Bank / Branch
SWIFT handles the registration of these codes
The code is 8 or 11 characters
 4 characters - bank code

2 characters - country code

2 characters - location code

3 characters - branch code, optional ( 'XXX' for primary
office)

Where an 8-digit code is given, you may assume that it refers to
the primary office.

BIC is often called SWIFT addresses or codes
Examples of BIC

BIC ICICINBB is for ICICI Bank, Mumbai

ICIC identifies ICICI Bank
 IN
identifies country code for India
 BB identifies Code for Mumbai

BIC ICICINBB011 is for ICICI Bank, Andheri

22
011 identifies Code for Andheri Branch
BKE / Authenticity of Message

BKE stand for Bilateral Key Exchange

BKE is an essential part of the security of the S.W.I.F.T. network.

Exchanges secret bilateral authentication keys

Automatically generates code while sending

It also decodes and confirm while receiving

Once BKE relation established within 2 banks they can send and
receive authenticated messages between them.

If No BKE present then only MT 999 can be exchanged
(MT 999 Free format Unauthenticated Message)
23
Benefits of BKE
24

Automatically verifies the authenticity of message

Smooth process without human intervention

Cost saved for processing

Processing time reduced
Swift Messages

It is a written communication in a structured format

It is not a file

No Attachments can be sent

Message types (MT)
SWIFT message as identified by 3 digit number
Each MT have diff Structure / Use

Message categories
series of MTs relating to a particular class of transaction, as
indicated by the first digit of the MT number.

25
Message Blocks Header, Text , Trailer
Message Blocks

Header:
Contains control information
Addressee, processing, priority and security.

Text
Contains the substance of the message.
format and structure varies according to the MT

Trailer
For control purposes, CHK Trailer, PDE Trailer
26
Categories of Messages
Category
27
Details
1
Customer Payments and Cheques
2
Financial Institution Transfers
3
Treasury Markets – Fx, Money Market
and Derivatives
4
Collection & Cash Letters
5
Securities Markets
6
Treasury Markets - Precious Metals /
Syndications
7
Documentary Credits & Guarantees
8
Travelers Cheques
9
Cash Management & Customer Status
Structured / Free Format Message
28

X99 in each category are free format message
(799 is Free format message for LC/BG)

All other are structured MTs

Structured as per Type and use of Message

Except 999 all other free format MTs are
authenticated
MT 110 Scope
29

Advise of Cheque(s)

Sent by a drawer bank, or a bank acting on behalf
of the drawer bank to the drawee bank

It is used to advise the drawee bank, or confirm to
an enquiring bank, the details concerning the
cheque(s) referred to in the message
MT 110 Format
Field
No.
30
Field Name
Status
Content /
options
20:
Senders ref No.
M
16x
53A:
Senders Correspondent
O
A, B or D
54A:
Receivers Correspondent
O
A, B or D
72:
Sender to receiver information
O
6*35x
21:
Cheque Number
M
16x
30:
Date of issue
M
6n
32A:
Cur code/Amount
M
3a,15d
52A:
Drawee Bank
O
A, B or D
59:
Payee / Beneficiary
M
[/34x]
4*35x
MT 111 Scope
31

Request for Stop Payment of a Cheque

This single message type is sent by a drawer
bank, or a bank acting on behalf of the drawer
bank, to the drawee bank
MT 111 Format
Field
No.
32
Field Name
Status
Content /
options
20:
Senders ref No.
M
16x
21:
Cheque Number
M
16x
30:
Date of issue
M
6n
32A:
Cur code/Amount
M
3a,15d
52A:
Drawee Bank
O
A, B or D
59:
Payee / Beneficiary
O
[/34x]
4*35x
75:
Queries
O
6*35x
Flow of payment
Ordering Customer(50K)
Sender (Header)
Receiver (Nostro Account)
Ben. Bank Nostro (56A:)
Ben Bank (57a:)
Beneficiary (59)
33
What is Nostro / Vostro
Nostro
Vostro
34
An account that a Bank holds with a foreign Bank
An account of foreign Bank held with us
STP Payment
35

Currency Clearing House Process

Funds transferred without any repair

No human intervention

Low cost

Real time payments
Road to STP
36

Nostro and Currency must match

Ben bank correspondent SWIFT BIC

Ben bank SWIFT BIC or A/c No. with Corresp

Beneficiary Full A/c No. given

Beneficiary Correct Name Given

Swift structure is strictly followed
Collection MT4xx messages

MT400 : Advice of Payment

MT410 : Acknowledgement

MT412 : Advice of Acceptance

MT 499 : Authenticated free format message for
documents sent under collection basis.
Stages in LC Backed Trade
Issue of DC and Amendment
Shipment of Goods/ Presentation of
documents
Discrepancy / Acceptance of Documents
Payment of Documents
38
Swift for Documentary Credit
Below MTs are used for DC
MT
39
Purpose
700
Issue of a DC
701
Issue of a DC continuation of MT 700
707
Amendment to a Documentary Credit
710
Advice of a Third Bank's DC
711
Adv of Third Bank’s DC MT 710 continuation
730
Acknowledgement
734
Advice of Refusal
740
Authorisation to Reimburse (Issuing Bk)
742
Reimbursement Claim (Claiming bank)
747
Amendment to MT 740
752
Authorisation to Pay, Accept or Negotiate
MT 734 Scope

This message is sent by the issuing bank to the
bank from which it has received documents related
to a documentary credit. It may also be sent by the
bank nominated to pay/accept/negotiate/incur a
deferred payment undertaking to the bank from
which it has received documents.
 It is used to advise the Receiver that the Sender
considers the documents, as they appear on their
face, not to be in accordance with the terms and
conditions of the credit and that, consequently, it
refuses them for the discrepancies stated. The
Sender also states that it is holding the documents
at the disposal of, or returning them to the
Receiver.
40
MT 740 Scope

This message is sent by the issuing bank to the
reimbursing bank.
 It is used to request the Receiver to honour claims
for reimbursement of payment(s) or negotiation(s)
under a documentary credit.
 The MT 740 authorises the reimbursing bank to
debit the account of the Sender, or one of the
Sender's branches if so indicated, for
reimbursements effected in accordance with the
instructions in the MT 740.
41
MT 742 Scope


42
This message is sent by the paying/negotiating
bank to the bank authorised to reimburse the
Sender for its payments/negotiations.
It is used to claim reimbursement of payment(s) or
negotiation(s) under a documentary credit, as
relevant to the reimbursing bank.
Reimbursement Payment
MT
740
Issuing
Bank
43
Reimbursing
Bank
MT
742
Negotiating
Bank
MT 747 Scope



44
It is an ammendment to MT740. This message is
sent by the bank which has issued an
authorisation to reimburse (issuing bank) to the
reimbursing bank.
It is used to inform the Receiver about
amendments to the terms and conditions of the
credit relevant to the authorisation to reimburse.
The amendment is to be considered as part of the
authorisation to reimburse.
MT 754 Advice of
Payment/Acceptance/Negotiation

This message is sent by the paying, accepting or
negotiating bank, or the bank incurring a deferred
payment undertaking, to the issuing bank. It may
also be sent by the bank to which documents have
been presented to a bank that has been nominated
to pay/accept.
 It is used to advise the Receiver that documents
were presented in accordance with the credit
terms and are being forwarded as instructed.
45
MT 756 Advice of Reimbursement or Payment


46
This message is sent by the issuing bank to the
bank from which it has received documents or by
the reimbursing bank to the bank from which it has
received a reimbursement claim
It is used to advise the Receiver about
reimbursement or payment, to that bank, for a
drawing under a documentary credit for which no
specific reimbursement instructions or payment
provisions were provided.
MT 799 Free Format Message
47

These are authenticated free format messages
typically used for L/c and BG cases.

Any messages to be sent under L/c / BG which are
general in nature, or which is used to convey a
discrepancy, a MT799 can be sent.
Swift for Bank Guarantees
Below MTs are used for BG
MT
48
Purpose
760
Issue or request the issue of BG
767
Amendment to BG
768
Acknowledgement of a BG Message
769
Advice of Reduction or Release
MT 760 Guarantee Format Specifications
Status
M
M
M
O
M
M
O
49
Tag
27
20
23
30
40C
77C
72
Field Name
Sequence of Total
Transaction Reference Number
Further Identification
Date
Applicable Rules
Details of Guarantee
Sender to Receiver Information
Thank You
50
MT 700 LC Format Specifications
Status Tag
Field Name
M
M
M
27
Sequence of Total
40A
Form of Documentary Credit
20
D/C Number
M
31C
Date of Issue
M
40E
Applicabe Rules
M
31D
Date and Place of Expiry
M
50
Applicant
MT 700 LC Format Specifications
Status Tag
Field Name
M
M
M
59
Beneficiary
32B
Currency Code , Amount
39C
Additional Amount Covered
M
41D
Available with…
M
42C
Drafts at….
M
42D
Drawee Bank – Name & Address
M
43P
Partial Shipments
MT 700 LC Format Specifications
Status Tag
Field Name
M
M
M
43T
Transhipment
44E
Port of Loading / Airport of Dep.
44F
Port of Discharge / Airport of Desti.
M
44C
Lartest Date of Shipment
M
45A
Description of Goods / Services
M
46A
Documents Required
M
47A
Additional Conditions
MT 700 LC Format Specifications
Status Tag
Field Name
M
M
M
71B
Charges
48
Period of Presentation
49
Confirmation Instructions
M
53A
Reimbursing Bank
M
78
Instruction to Pay/Accepatance/
Negotiating Bank