Immediate finality of processed payments
Through the real-time adjustment of the participants’ positions, EURO1 provides immediate finality for every processed payment. This means that at the time a payment is processed it is irrevocable and final, there is no unwind. EURO1 thereby offers an RTGS-equivalent system.
The real-time adjustment of each participant’s multilateral position is achieved through the unique legal structure of EURO1: the Single Obligation Structure (SOS). In the SOS, each participant only has one single obligation/claim towards the system at any time on any given business day. In other words, instead of having to manage multiple bilateral accounting arrangements, participants have one multilateral position in the system. This position is adjusted automatically and instantly every time a payment is duly processed.
The SOS is governed by German law and is legally validated in every jurisdiction where participants, or offices used for participation, are located.
EURO1 is designated under the Settlement Finality Directive (SFD) and settles in central bank money in T2 RTGS.
Identification of EURO1 as a SIPS
The European Central Bank designated EURO1 as a Systemically Important Payment System (SIPS) under the ECB Regulation on oversight requirements for SIPS in August 2014. EURO1 accordingly is subject to, and complies with, the highest oversight requirements.
EBA CLEARING publishes a Disclosure Report detailing the compliance of EURO1 with the SIPS Regulation and the Principles for Financial Market Infrastructures.
Minimal counterparty exposure managed by participants
Liquidity in EURO1 is generated by the mutual giving and receiving of limits between the participants. The bilateral limits granted by a EURO1 Participant to each of the other participants in total provide the multilateral net receiving limit (credit cap) of the grantor participant. Similarly, the total of the bilateral limits received by a EURO1 Participant from all the other participants provide the multilateral net sending limit (debit cap) of the grantee participant.
With the system of bilateral limits and the Single Obligation Structure, counterparty exposure is managed directly by the EURO1 Participants:
- All participants contribute in equal shares to a liquidity pool (which constitutes the maximum possible exposure of any two participants) in the form of cash deposits held with the ECB.
- The bilateral limits do not restrict the bilateral payment flows between the individual participants. Participants can send payments to any of the other participants within the limit of the total amount of their debit cap.
- The overall risk a participant can bring to the system is limited to the amount of the maximum debit cap set at system level. In case of a change of the number of participants, the amount of the maximum debit cap may be revised - as recommended, following user consultation. Any revision of the amount of the maximum debit cap is notified in advance to the participants.
- The risk for a participant based on a single failure is capped at the amount of the limits granted to the failing participant.
- EURO1 Participants can adjust the discretionary element of their limits to the other participants up until 02:00 CET on the same day, allowing participants to quickly react to changing circumstances.
- Participants are granted, by each of the other participants, a mandatory limit, the sum of which is equal to its deposit in the EURO1 Liquidity Pool. Accordingly, the mandatory limit a participant has to allocate to each other participant in the service amounts to the individual participant’s liquidity pool deposit divided by the number of participants, less one.
Operational robustness and resilience
EURO1 is at the forefront of the industry in terms of safety, security and resilience. The system benefits from the state-of-the-art resilience of Swift, the processing service provider for EURO1.
EBA CLEARING runs three separate operations centres for system monitoring in different countries with rotating shifts
Specific dedicated procedures with critical service providers, including in particular Swift and the ECB as provider of settlement services, are ready for activation in case of abnormal events.
All operational procedures, including the resilience arrangements of all EURO1 Participants, are reviewed at regular intervals. In co-operation with its critical service providers, including the ECB and Swift, EBA CLEARING is engaged in a continuous process geared at testing, revising and further enhancing its resilience arrangements and procedures.