Payments and markets glossary

A quantitative limit on the funds or securities transfer activity of a participant in a system. Limits may be set by each individual participant or imposed by the entity managing the system. Limits can be placed on system participants’ net debit and/or net credit positions.

See acquirer (card acquirer)

A financial institution that makes payment cards available to cardholders, authorises transactions at point-of-sale (POS) terminals or automated teller machines (ATMs) and guarantees payment to the acquirer for transactions that are in conformity with the rules of the relevant scheme.

A card enabling the cardholder to withdraw cash from a cash dispenser and/or deposit cash. The cash function is usually combined with a payment function. See also cash card

See credit card (card with a credit function)

See debit card (card with a debit function)

A person to whom a payment card is issued and who is authorised to use that card.

Banknotes and coins.

See cashback (cash advance at POS terminal)

A card which has only a cash function. See also card with a cash function

An electromechanical device that permits authorised users to withdraw banknotes, typically using machine-readable plastic cards. See also automated teller machine (ATM)

A procedure initiated by an end user of an electronic payment instrument scheme/arrangement to place cash on a user account.

The entity whose assets or liabilities are used to settle the payment obligations arising from funds transfer systems or from securities transfers within a central securities depository (CSD). Commercial banks and central banks are typical cash settlement agents.

The cash-out of value initiated by an end user via an automated teller machine or following an agreed procedure at a point of acceptance and resulting in the debiting of the same end user’s account.

A device that allows customers, by using a bank card or other means, to deposit euro banknotes in their bank accounts, but which does not have any cash-dispensing function.

A service offered by a merchant, on behalf of a payment service provider or providers or a credit institution, allowing customers to withdraw or deposit cash without having to buy anything.

A logistics company that transports banknotes, coins or other items of value between locations such as national central banks’ premises, cash centres, ATMs and retailers.

A transaction at a POS terminal in which a cardholder asks the retailer to add an amount to the total purchase sum paid for by card or other means in order to receive that amount in cash along with the purchase. See also point-of-sale (POS) terminal

See correspondent central banking model (CCBM)

See Collateral Central Bank Management (CCBM2)

See central counterparty (CCP)

Liabilities of a central bank, in the form of either banknotes or bank deposits held at a central bank, which can be used for settlement purposes.

An entity that interposes itself, in one or more markets, between the counterparties to the contracts traded, becoming the buyer to every seller and the seller to every buyer and thereby guaranteeing the performance of open contracts.

An arrangement between two central counterparties (CCPs) that allows the provision of central counterparty services for trades performed by the participants of those two CCPs, without requiring those participants to become members of both CCPs.

An entity that: 1) enables securities transactions to be processed and settled by book entry; 2) provides custodial services (e.g. the administration of corporate actions and redemptions); and 3) plays an active role in ensuring the integrity of securities issues. Securities can be held in a physical (but immobilised) form or in a dematerialised form (whereby they exist only as electronic records).

A method used in certain transfer systems for the processing of orders. This involves altering the sequence in which transfer orders are processed in order to increase the number or value of transfers that can be settled with the available funds and/or securities balances (or the available credit or securities lending lines). See also optimisation routine

See delayed debit card (charge card)

A written order from one party (the drawer) to another (the drawee; normally a credit institution) requiring the drawee to pay a specified sum on demand to the drawer or a third party specified by the drawer.

A card with an embedded microprocessor (chip) loaded with the information necessary to enable payment transactions.

The reconciliation and, in some cases, confirmation of transactions prior to settlement, potentially including their netting and the establishment of final positions for settlement. For the clearing of futures and options, this term also refers to the daily balancing of profits and losses and the daily calculation of collateral requirements.

A fund composed of assets contributed by participants in a central counterparty (CCP) or by providers of guarantee arrangements that may be used to meet the obligations of a defaulting CCP participant. In certain circumstances, it may also be used to settle transactions and cover losses and liquidity pressures resulting from such defaults. A clearing fund serves as insurance against unusual price movements not covered by the margin calculation in the event of a member defaulting.

A common entity (or a common processing mechanism) through which participants agree to exchange transfer instructions for funds, securities or other instruments. In some cases, a clearing house may act as a central counterparty for those participants, thereby taking on significant financial risks. See also central counterparty

A member of a clearing house. See also direct clearing member, general clearing member, non-clearing member

A set of rules and procedures whereby financial institutions present and exchange data and/or documents relating to transfers of funds or securities to other financial institutions at a single location (e.g. a clearing house). These procedures often include a mechanism for calculating participants’ mutual positions, potentially on a net basis, with a view to facilitating the settlement of their obligations in a settlement system. See also clearing, clearing house, netting

A special form of netting which follows certain contractually agreed events (such as the opening of insolvency proceedings), whereby all existing obligations are accelerated such that they become due immediately. See also default, netting

An arrangement whereby a product or service is associated with more than one brand.

Contact Group on Euro Securities Infrastructures

An asset or third-party commitment that is used by a collateral provider to secure an obligation vis-à-vis a collateral taker. See also collateral pool, pledge, repurchase agreement

A common platform for Eurosystem collateral management, establishing efficient collateral mobilisation and management procedures for both domestic and cross-border collateral.

Collateral management includes the process used to control the correspondence between the market value of the relevant collateral and the required value of that collateral. It generally also includes the generation and processing of collateral transfers.

A collateralisation technique that enables an institution to make collateral available to a counterparty without allocating it to a specific transaction. Antonym: earmarking

Commercial bank liabilities that take the form of deposits held at a commercial bank which can be used for settlement purposes. See also loro account, nostro account

A facility (e.g. a credit line or a repo facility) whereby the provider is contractually required to advance funds in specified circumstances. See also collateral pool, loss-sharing agreement

An entity, usually a credit institution, that provides the two international central securities depositories (ICSDs) with safekeeping and asset servicing for physical papers (“global notes”) covering all or part of an issue of international debt instruments (e.g. Eurobonds). See also specialised depository

A process whereby the terms of a trade are verified either by directly involved market participants or by a central entity.

A payment transaction using a card or other means where the payer and the merchant (and/or their equipment) are at the same physical location and where the communication between the portable device and the point of sale (POS) takes place through contactless technology.

A contractual commitment by a custodian to credit and debit a customer’s cash and securities accounts, as appropriate, on the date on which the customer’s contract with its counterparty is due for settlement (i.e. the contractual settlement date), regardless of whether settlement has actually occurred. Such crediting and debiting is normally provisional and does not become final if settlement does not occur within a time period established by the custodian.

International standards for systemically important payment systems developed by the G10 central banks in order to guide the oversight activities of central banks with regard to payment systems of systemic importance. For details, see the report “Core Principles for Systemically Important Payment Systems”, BIS, January 2001.

An action or event decided by the issuer of a security which has an impact on the holders of that security. This may be optional, in which case those holders have a choice (for example, they may have the right to purchase more shares, subject to conditions specified by the issuer). Alternatively, it may be mandatory, whereby those holders have no choice (e.g. in the case of a dividend payment or stock split). Corporate actions can relate to cash payments (e.g. dividends or bonuses) or the registration of rights (subscription rights, partial rights, splits, mergers, etc.).

See corporate action (corporate event)

An arrangement whereby one bank (the settlement or service-providing bank) makes or receives payments (potentially performing other banking services in addition) on behalf of another bank (the customer or user bank). See also loro account, nostro account, tiering arrangement

A mechanism established by the European System of Central Banks with the aim of enabling counterparties to use eligible collateral in a cross-border context. In the CCBM, national central banks act as custodians for one another. This means that each national central bank has a securities account in its securities administration for each of the other national central banks and the ECB.

The risk that between the time a transaction is agreed and the time it is actually settled, the counterparty to that transaction will fail to fulfil its obligations.

Committee on Payments and Market Infrastructures

See Core Principles for Systemically Important Payment Systems (CPSIPS)

See credit limit (credit cap)

A card that enables cardholders to make purchases and/or withdraw cash up to a prearranged credit limit. The credit granted may be either settled in full by the end of a specified period, or settled in part, with the balance taken as extended credit (on which interest is usually charged).

A limit on the credit exposure which a payment system participant incurs either vis-à-vis another participant (a “bilateral credit limit”) or vis-à-vis all other participants (a “multilateral credit limit”) as a result of receiving payments which have not yet been settled.

A commitment, made in advance by a given entity, to grant credit on demand to another entity subject to agreed terms.

The risk that a counterparty will not settle the full value of an obligation – neither when it becomes due, nor at any time thereafter. Credit risk includes replacement cost risk and principal risk. It also includes the risk of the settlement bank failing. See also principal risk, replacement cost risk

A set of procedures enabling a transfer of value by crediting a payee’s user account. This occurs by means of a payment transaction or a series of payment transactions from a payer’s user account carried out by the payment service provider which holds or administers the payer’s user account, based on an instruction given by the payer.

A payment where the financial institutions of the payer and the payee are located in different countries.

Settlement that takes place in a country (or currency area) in which one or both parties to the transaction are not located. Antonym: domestic settlement

See foreign exchange settlement risk (cross-currency settlement risk)

An agreement between two central counterparties (CCPs) which makes it possible to limit the margin requirements for institutions participating in both CCPs by regarding the positions and collateral of such participants as one portfolio.

The settlement of a payment or securities transaction through a link between two separate payment systems or securities settlement systems.

An asset recorded in digital form and enabled by the use of cryptography that is not and does not represent a financial claim on, or a liability of, any identifiable entity.

See central securities depository (CSD)

A set of technical and legal arrangements between two central securities depositories (CSDs) for the cross-system transfer of securities. See also direct link, indirect link, investor CSD, issuer CSD, relayed link

An entity, often a credit institution, which provides securities custody services to its customers (cf. depository). See also global custodian

The holding and administration, by an entity entrusted with such tasks, of securities and other financial instruments owned by a third party.

The risk of a loss being incurred on securities in custody as a result of a custodian’s insolvency, negligence, misuse of assets, fraud, poor administration or inadequate record-keeping. See also custodian, custody

The deadline set by a system (or an agent bank) for the acceptance of transfer orders for a given settlement cycle.