Friday, July 29, 2005

SWIFT

The Society for Worldwide Interbank Financial Telecommunication aka SWIFT is the financial industry-owned co-operative supplying secure, standardised messaging services and interface software to over 7,800 financial institutions in more than 200 countries.
SWIFT's worldwide community includes :
  • Banks
  • Broker/Dealers
  • Investment managers
  • Market infrastructures in payments, securities, treasury and trade.

It’s a not-for-profit institution owned by its participant banks and is headquartered in Brussels, Belgium.

Benefits of SWIFT

Secured Network :- SWIFT provides a communication network for passing finance-related messages between its participants in a secured environment.

  • Standardization :- SWIFT is beneficial to the financial services industry because its members adhere to one set of standards which allows for a reduction in the participant’s cost of message processing.
  • Cost Benefit :- It also frees the participants from having to invest in a communication network between themselves and other banks.
  • Maintanence :- The communication infrastructure and upkeep of that network is provided by SWIFT.

Ever wondered how SWIFT emerged !!

Before 1973, banks communicated via telex — not very secure, minimum standards and not automated either. Imagine receiving 10,000 telexes a day !! So, 239 banks from 15 countries formed a cooperative to "automate the telex". They called it the Society for Worldwide Interbank Financial Telecommunication (no "s" at the end). S.W.I.F.T.

Wanna become member of SWIFT ??

1. Please pay some fee !!
In order for banks to become members of the SWIFT Network, they must first petition SWIFT in writing and then pay a fee .

2. Please test with SWIFT !!
After the application process, the mandatory testing with SWIFT is required and the bank will demonstrate its ability to send and receive messages over the network.

Charges on grounds of usage of network ??

1. Based on Volume
Once on the network, the bank is charged a fee for message traffic. The charges are determined by the participant’s message volume. The higher a participant’s volume, the less expensive the charge per message. SWIFT refers to this pricing scale as the Volume Tier.

2. Based on the messages transmitted
The charges are also based on what type of traffic a participant is sending - intra-institution or inter-institution.

Intra-institution traffic are messages transmitted between destinations which are part of the same institution. For example, in MS, an intra-institution message might be one that is sent from the Trust Company to the MS Bank of Luxembourg.

Inter-institution traffic is all other communication.

What for MS uses SWIFT ??
Cash transfers
Securities transfers
Foreign Exchange type messages
Confirmations of transactions
Intra-Day and End-of-Day statement balances from agent

Components of SWIFT
The two main components of SWIFT to understand are

  • Messages
  • Bank Identifier Codes

Messages
The messages are composed of the header, the body and the trailer.

The header is where the sender and receiver of the message are specified. The receiver and sender are identified by their Bank Identifier Codes (BIC) which will be discussed below.

The body of the message contains the instructions such as what is being transferred; cash or shares, the quantity of the transfer, the price and any of the other parties involved in the transaction such as the beneficiary or the intermediary bank. The body of the message contains the most data and it is formatted using field tags which are a short-hand way of identifying what type of data is available in this field.

For example, field tag 53A is called PARTY IDENTIFICATION which indicates that the contents of that field identifies one of the parties of the message. The A indicates the option that has been chosen to identify the the party. For example, 53A would mean the party is going to be identified by the Bank Identifier Code (BIC) while 53D would mean that the Name and Address are going to be used to identify the party.

The trailer of the message contains authentication information which allows SWIFT and the counterparty to validate that the message is actually from the sender. The trailer also contains a piece of information called the checksum which is used to ensure that the message has not been tampered with or corrupted during transmission over the network.


Bank Identifier Code (BIC)
The Bank Identifier Code (BIC) is the identification code supplied by SWIFT to members of the network. It is basically the institution’s address on the network. The BIC code is applied for when the institution wishes to join the SWIFT Network.

The format of the BIC code is as follows:

MSNYUS33AXXX

Branch Code (10-12 :with this an insitution can have multiple dest.)
Terminal Id (9 : in case of MS its always A)
Region (7-8 : Region of the country where institution is located)
Country Code (5-6 : Country where the institution is located)
Institution (1-4 : Here identifies the MSCO

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