Settlement and processing cycles

Key features and benefits

STEP2 provides fast and reliable processing and settlement of SEPA Credit Transfers and SEPA Direct Debits to its participants all across SEPA. The STEP2 clearing and settlement infrastructure is operational on all TARGET days and offers the following key features to its participants: 

  • Multiple intra-day cycles and optional night-time cycles for SEPA Credit Transfers 
  • Settlement of the STEP2 SCT and SDD cycles on a bilateral gross basis with multilateral net calculated positions in TARGET2 
  • Settlement before delivery for SCTs – by strictly applying this principle, STEP2 SCT enables participants to book onto their customers’ accounts any payments received without any credit risk 
  • Payment warehousing and SCT cycle scheduling functionality 
  • Monitoring facilities via the Direct Participant Web Station, which provides real-time information on liquidity positions, on the status of files or payments in the system, routing table information and much more 

 

The main benefits of these arrangements are the following: 

  • Optimal support of the banks’ intra-day liquidity management 
  • The possibility for banks to better control and plan their processing and ensure smoother payment flows 
  • A highly secure and resilient settlement process 
  • A flexible evolution of the service offering in line with the future needs of the participant banks and their customers 

Functioning of the clearing and settlement process

Clearing and settlement phases

Each payment cycle can be divided into three standard phases: 

 

  • Validation phase: From the opening time of the cycle until the sending cut-off time, incoming and warehoused payments for this cycle are validated and stored. 

  • Settlement phase: From settlement opening time until settlement cut-off time, STEP2 calculates what each direct participant owes to every other direct participant, and sends the results to the multilateral netting module for settlement in TARGET2.Page Break
     
  • Output phase: When settlement has been completed, STEP2 delivers the payments and reconciliation reports to the direct participants.

Settlement of STEP2 in TARGET2

Participating banks settle their STEP2 obligations by paying a net calculated amount in TARGET2. STEP2 first creates bilateral gross obligations and reports them to the banks, calculates the multilateral net positions and sends these multilateral net amounts to TARGET2 using the Ancillary System Interface. 

Direct participants in the STEP2 SEPA Services have the possibility to request MT 900 / MT 910 and MT 940 / MT 950 messages from TARGET2 for reconciliation purposes.

Measures supporting smooth settlement

A number of measures and procedures are in place to ensure that the STEP2 SEPA Services settlement is carried out in a smooth manner, even under more exceptional circumstances: 

  • Pre-settlement report: After each sending cut-off for a settlement cycle, STEP2 sends to the direct participants the liquidity positions they will have to settle in the upcoming cycle. For SDD, it is already possible to have this information broken down per Reachable BICs. This possibility may be provided for SCT as part of the April release 2018. 

  • Information period: Apart from the possibility to monitor their real-time settlement position via the DPWS, direct participants have a 15-minute-long information period before each settlement for liquidity management reasons. This information period allows the participants to check whether they are short or long with regard to their STEP2 obligations and to take the necessary actions. The start of the information period is notified to the settlement banks in TARGET2 by an ICM Broadcast. 

 

  • Operational monitoring: In the rare case that a direct participant in the STEP2 SEPA Services might be lacking liquidity at the time of settlement, EBA CLEARING is in a position to detect this rapidly through operational monitoring and can contact the participant to ensure it tops up its RTGS account in order to prevent any delay in the settlement and distribution of output files. 

 

  • Re-submission of payments in STEP2 SCT: If a direct participant lacks liquidity in any of the first four day-time cycles, its payments are withdrawn from that particular cycle, so that settlement can take place normally for the remaining participants. The payments withdrawn are automatically resubmitted to the next cycle, with the exception of the last cycle of the business day. Payments moved to a subsequent cycle will be notified by means of an enhanced CCF report as part of the April 2018 Release.