TARGET2 - Services
TARGET2 is in daily operation, except on Saturdays and Sundays and on official TARGET2 holidays (New Year, Good Friday, Easter Monday, 1 May and 25 and 26 December). Daytime processing is from 7.00 to 18.00, with cut-off times remaining unchanged at 17.00 for customer payments and 18.00 for interbank payments.
The (new) TARGET2 business day starts on the evening of the preceding business day at 18.45.
From 19.30 to 22.00 and from 1.00 to 6.45, TARGET2 is available for the settlement of overnight cycles of ancillary systems on the basis of dedicated liquidity. Maintenance work is carried out from 22.00 to 1.00.
Types of payment
TARGET2 offers its participants settlement services in euro, with settlement in central bank money. Every euro payment that is to be settled in real time and in central bank money can be settled via TARGET2.
Direct TARGET2 participants can submit the following payment and SWIFT message types.
- Credit transfers (MT 103, MT 103+, MT 202)
- Direct debits (MT 204)
As a general rule, payments are executed immediately if there is sufficient liquidity on the RTGS account of the participant. In order to have payments settled according to priority, the participant can assign the following priorities.
- Priority level 0 = highly urgent payments
- Priority level 1 = urgent payments
- Priority level 2 = normal payments
Each priority level has special characteristics. Some priority levels can only be used by certain participant groups.
Each direct participant holds a payment transaction account in TARGET2 (RTGS account). The respective central bank (central bank in the participant's country or the "guest" central bank in the case of remote access) is solely responsible for administering the RTGS accounts of its direct participants. Each RTGS account is identified by a BIC and assigned to a direct participant.
Central banks participating in TARGET2 can settle certain transactions (eg cash transactions) outside of the payment transaction feature of TARGET2. A dual account structure is available in such cases. This may be either of the following.
- A proprietary home account management application of the respective central bank
- The standardised home accounting management application of the TARGET2 single shared platform (optional service for central banks in TARGET2 - Home Accounting Module, short HAM)
In addition to RTGS accounts the Bundesbank keeps HAM accounts for institutions that do not need the full service of an RTGS account. For special purposes, ie cash transactions and certified checks ("Bestätigte Bundesbankschecks"), the Bundesbank also keeps accounts in its home account management application KTO2. Therefore, participants in the TARGET2 component system of the Bundesbank (TARGET2-Bundesbank, short TARGET2-BBk) as well as HAM account holders at the Bundesbank in general hold accounts in KTO2 for these purposes, besides their RTGS accounts or HAM accounts, respectively.
The liquidity can remain on the RTGS accounts overnight or can be transferred automatically to HAM accounts (with the same BIC as the respective RTGS accounts) at the end of the business day and transferred back again before the start of the next business day.
The following liquidity sources can be used for the execution of payments.
- Balance on the RTGS account
- Intraday credit provided by the Bundesbank on the RTGS account
- Offsetting payments
In TARGET2, a direct participant has the option of managing the use of liquidity provided according to individual requirements by means of liquidity reservations and a limit system.
Two options for reserving liquidity are offered.
- Highly urgent reservation: liquidity reservation for the settlement of highly urgent payments (priority level 0)
- Urgent reservation: liquidity reservation for the settlement of urgent payments (priority level 1)
In addition, there is the possibility of setting liquidity "to the side" for the settlement of ancillary systems ("dedicated liquidity").
There are two limit types.
- Bilateral limit
- Multilateral limit
These different limit types are sender limits, ie they determine the amount of payments a direct participant is prepared to send without receiving payments in advance.
The optional setting of limits allows participants to do the following.
- Reserve liquidity exclusively for the execution of highly urgent and urgent payments.
- Avoid one-sided liquidity flows vis-à-vis individual participants.
- Synchronise payment flows with other participants and demand their early delivery
TARGET2 participants have the option of combining various accounts - including those held at different central banks - to form an account group for the purpose of consolidated information (consolidated account information procedure) or central processing (virtual account, aggregated liquidity procedure, only for the euro area).
In the case of a virtual account, the available liquidity of all members of the account group is aggregated in a liquidity pool during the business day. Each account holder within a group has thus the possibility of making payments through their own account up to the total level of intraday liquidity available to the account group. In the case of the consolidated information option, only consolidated information is offered to the account group. Processing will still be carried out exclusively at individual account level.
In TARGET2, each individual payment submitted is processed entirely in real time. This means that the individual payment is taken into account in each stage of processing. This includes the possibility of checking the status of the payments in the Information and Control System and changing important control parameters of individual payments (eg their position in the queue).
In TARGET2, all incoming payments are settled on a gross basis, which means the following.
- Cover principle
- Settlement in central bank money
- Immediate booking
Settled payments are booked immediately on the RTGS account and are then irrevocable. Payments that have not been settled remain in the queue until no longer than the end of the business day.
Depending on the payment type, the participant's payments in the queue are settled in a liquidity-saving way using high-performance settlement algorithms.
The following rules apply.
In the case of highly urgent and urgent payments, an event-oriented check is performed as to how they can be settled. This check occurs in the following cases.
- Each new inflow of liquidity
- Change to the sequence of highly urgent and urgent payments
- Recall of a highly urgent or urgent payment
- Change of payment type
- In the case of normal payments, there is a continuous settlement process. This involves all highly urgent, urgent and normal payments in the queue under consideration of the set limits and the reserved liquidity.
TARGET2 supports the settlement of time-critical settlement payments that the participant has to make to other clearing procedures (eg CLS, EURO1). The following functions are available in this case.
- Reserving liquidity
- Prioritising payments
- Setting execution time
The customer interface between TARGET2 and its direct participants is based on SWIFT. The SWIFT FIN Y copy service and a dedicated SWIFT closed user group are used for the payment flow via TARGET2.
The use of the Y copy service allows participants to address their payments as they would in correspondent banking. The addressing of TARGET2 payments is supported by a TARGET2 directory (directory of all banks that can be addressed via TARGET2).
Information and Control Module
The payment settlement and liquidity position of the direct participants are supported in one by an extensive Information and Control Module which works in real time. This allows for both integration in the back office ("application-to-application mode", A2A) and operation on a PC ("user-to-application mode", U2A).
In both variations, the Information and Control Module offers the following.
- Online information
- Interactive change of the control parameters
Ancillary system settlement
In TARGET2, all ancillary systems (eg securities settlement, individual and retail payment systems) can settle transactions directly in central bank money. As a matter of principle, payments can be settled on any RTGS account. Ancillary systems can take advantage of standardised access and clearing procedures. In this context, the Ancillary System Interface (ASI) offers a special range of services featuring additional functions tailored to meet the requirements of ancillary systems.
TARGET2 allows for overnight securities settlement.
Interaction with TARGET2-Securities
TARGET2-Securities (T2S) enables the harmonised and centralised settlement of securities in central bank money within the Eurosystem. T2S integrates the securities accounts of the connected central securities depositories and the dedicated cash accounts (DCAs) held at the central banks. Central bank money is fed into the system on a flexible basis. For euros, this is done from the PM accounts in TARGET2. Legally, the DCAs belong to TARGET2; they therefore fall under the TARGET2 Guideline.
Direct T2S participants are given access to the T2S GUI (the user interface) and can use all functionalities. This includes, for example, receiving account statements for the DCA. In addition to direct participation in TARGET2-Securities, it is possible to participate indirectly in T2S via TARGET2. In this case, the indirect participant must apply to use the TARGET2 value added services (VAS). The VAS make it possible, for example, to request the balance of the T2S DCAs in TARGET2. However, an indirect participant does not receive an account statement.
Liquidity transfers from TARGET2 to T2S can be recorded either immediately or as standing orders. Provided that the TARGET2 VAS have been requested, liquidity can be transferred from the T2S DCA to the PM account from within TARGET2.
At the end of the day, the credit balance of a T2S DCA must be transferred back to the PM account. This is ensured by means of the automated cash sweep function. The credit balance can therefore be counted towards the minimum reserve.