SWIFT info paper
September 2019

SWIFT gpi forcapital markets

Introduction
Capital markets are under pressure. The burden of regulatorycompliance, the higher cost of capital, the tightening squeeze on
fees and margins, in tandem with demands from customers for
greater transparency and real-time data, are all forcing capital
markets intermediaries to adapt.
Investment banks, brokers, custodians, asset managers andCSDs all need to find new sources of profitable growth as well as
cut costs and risks. SWIFT’s global payments innovation (gpi) isalready improving the user experience in cross-border payments
as well as reducing costs and risks in correspondent banking –and it offers capital markets firms equivalent benefits.
At the heart of SWIFT gpi is the ability to track and confirm apayment in real-time and an end-to-end processing service levelagreement. This enables users to manage payments pro-actively,
ensuring critical deadlines are never missed, and to cut operationalcosts by reducing the number of failed trades. Knowing whether apayment will arrive on time can also cut the cost of liquidity
dramatically.
Through specific use cases, this paper explains how SWIFT gpi
can improve a range of post-trade processes today. It also marks
the first tangible step towards the realisation of an objective thecapital markets have pursued since the turn of the century: thetransformation, through collective effort and collaboration, ofpost-trade operations.

2Why the capital markets need
SWIFT gpi

The capital markets generate a lot of payments. Securities
are bought and sold for cash. Dividends, coupons, floating
rate interest payments, redemption amounts, takeoverconsiderations, renounceable rights, variation margin
movements and securities borrowings are all invariably paidin cash. Foreign exchange (FX) transactions generate two
cash payments each.
Many of these payments are carried through the SWIFT
network, which connects the overwhelming majority ofcapital markets counterparties safely and securely. In fact,
SWIFT data suggests that at least 30 per cent of all
payments messages sent over the network are exchanged
with a counterparty in the capital markets.

SWIFT gpi reduces risk and adds value through:The gpi Tracker, which enables users to trace a payment fromthe sender which originated it, through the correspondentbanks that process it, to the ultimate beneficiary, using a UniqueEnd-to-End Transaction Reference (UETR)
Visibility on incoming payments, which allows beneficiaries
to be notified that a payment is on its way, even before it has
been processed through intermediaries
A Service Level Agreement (SLA), which gives users
comfort that payments will reach the account of the end
beneficiary and confirmation of credit will be available in theTracker by an agreed timescale
The gpi Observer, which benchmarks the performance ofcounterparties against the SLA, providing information thatencourages transparency and ensures the agreed service levels
are respected by all payment providers
Full transparency into fees and charges, since the exact
amounts deducted by each intermediary as a payment passes
from the initiator to the end beneficiary as well as the ultimate
amount credited are visible in the Tracker
A pre-validation service that reduces the risk of errors bychecking payments instructions upfront to see if the beneficiarybank information is up-to-date and correctly formatted
Case resolution, which improves the customer service forenquiries and investigations related to gpi payments by enablingcase requests to be created and followed up online with anaudit trail
A stop and recall service, which allows users to halterroneous or fraudulent payments immediately, reducing therisk of mistaken transfers of value and the cost of repairing themafter they are made.

Case study #1: Treasury management
Challenge

SWIFT gpi solution and benefits

If cash positions are not monitored and managed carefully, it can lead to
expensive borrowing on last minute overdrafts; over-funding ofsettlement accounts (which require cash to be at hand for deliveryversus-payment settlement to occur); or even breaches of local rules(for example those requiring settlement accounts to be pre-funded) that
result in expensive buy-ins.

Real-time monitoring of inbound and outbound payments to establish
net cash positions accurately, cutting the cost of credit
Avoid under- and over-funding of cash accounts in markets that requirepre-funding to settle trades

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The case for adopting SWIFT gpi

SWIFT gpi addresses a real business problem in the capital
markets: excessive post-trade costs. By sharing data
simultaneously between correspondent banks, investmentbanks, custodian banks, brokers, asset managers andfinancial market infrastructures, gpi enables all parties to apayment to repair any errors or omissions early enough to
avoid reconciliation breaks and consequent settlement
failure.
Early resolution of problems likely to cause a payment to fail– through real-time sharing of information – cuts post-trade
costs and risks. This fulfils an ambition that both acollaborative investment project (GSTPA) at the turn of thecentury and new technology, such as Distributed Ledger
Technology (DLT), have promised to deliver, but which
neither has actually accomplished.
In fact, DLT projects have shown that, although they havethe potential to transfer assets efficiently on DLT networks,
the simultaneous delivery of payment is challenging. It
requires the use of either:–– payment tokens that are not equivalent to fiat currency(domestic legal tender) on the same network; or–– off-network transactions that make use of the existing
structure of correspondent banks and payments
market infrastructures.

SWIFT gpi, by contrast, is already live and being usedaround the world. Every day, payment transactions with a
total daily average value of $300 billion are sent via gpi.
More than 3,500 financial institutions are live or committed
to implement gpi, including all of the largest global
custodian banks and investment banks. They and theircustomers are already able to track and trace payments
made in the capital markets, and network effects areaccelerating the rate of adoption.
The value of this ready and convenient access to a growing
range of counterparties is clear. SWIFT gpi does not require
revolutionary changes to technologies and processes. Itupgrades the existing systems instead. Since capital
markets are highly fragmented, with multiple layers ofintermediation, the reduction in manual intervention isarguably more valuable than it is in correspondent banking.
The value of payments in the capital markets is also higher
than in correspondent banking, further increasing thebenefit of gpi.

Case study #2: Reconciliation
Challenge

SWIFT gpi solution and benefits

Cash payments that cannot be reconciled are a major source of
unnecessary costs for capital markets intermediaries and their clients.

Getting early sight and more complete visibility allows potential problems
to be detected and resolved earlier

Cash breaks often occur because:–– the instructions contain inaccurate or inadequate information; or–– unexpected charges or fees were deducted along the payments
chain, causing a mismatch in the amounts.

Pre-validation minimises the risks of inbound and outbound payments
containing inaccurate information
gpi reduces the time spent investigating and reconciling unmatchedpayments and gpi case resolution helps resolve client queries faster4How SWIFT gpi works

It is not just easy to join SWIFT gpi, it is also simple to use.
That’s because, since November 2018, all SWIFT users
attach a UETR to every payment instruction message they
send over the network, and by end 2020 all financial
institutions on SWIFT will be required to confirm payments
have been credited to the gpi Tracker.
This means that investment banks, custodian banks,
brokers, asset managers, national (CSDs) and international
central securities depositories (ICSDs), and central
counterparty clearing houses (CCPs) are already generating
UETRs. This enables all parties to a payment to be able totrack and recognise it at any time on its journey from theinitiator to the final beneficiary.

However, to take advantage of the full benefits of gpi,
market participants must also subscribe to the gpi service
and to a set of business rules, described in an SLA. The
SLA specifies the service standards all users must achieve.
The immediate goal is to increase the speed at which usersof gpi finalise the delivery of each payment to the endbeneficiary and update the gpi Tracker.
Since the level of adherence of each user to the SLA is
published in the gpi Observer, users can see which of theirservice providers is achieving the highest standards. Since
this can be expected to encourage financial institutions to
put pressure on low performing service providers – or shift
their business away from them – it will lift the overall
standard of service in capital markets payments.

Case study #3: Corporate actions
Challenge

SWIFT gpi solution and benefits

There is often a delay between the announcement by an issuer of thevalue of an entitlement (such as a dividend) and the actual or backdated transfer of value. This creates problems for custodians inreconciling and allocating payments and dealing with client queries.

Greater transparency allows crediting of client accounts withentitlements earlier, with a much lower risk of non-payment
Pre-validation allows the account details of the beneficiary to bechecked for accuracy and completeness before payments are released,
reducing reconciliation risk
Getting earlier sight of inbound payments allows missing entitlements tobe pursued proactively with paying agents

5The benefits of SWIFT gpi for thecapital markets

A major cause of inefficiency in post-trade operations in the
pre-gpi marketplace was the lack of information about thestatus of a payment once it was released. Once a payment
began its journey from the payer to the payee, there was noway of knowing whether it had reached the beneficiary,
what fees and charges were deducted, or whether thepayment was altered along the way, until it arrived – orfailed to arrive.

gpi not only overcomes this lack of information about payments in transit
but offers additional benefits that include:
A lower cost of investigations, claims and reconciliations because
access to tracking information and case resolution services by all parties
to the transaction means exceptions are handled earlier and more
efficiently
A reduction in operational risk through improved certainty of credit,
quicker receipt of funds and fewer allocation errors, because mistakes
can be detected earlier and corrected before they cause problems
A reduction in compliance risk through earlier sight of data about theorigin, destination and purpose of a payment, mitigating the risk ofallocating funds to the wrong account or inadvertent commingling ofclient and in-house funds
A stop-and-recall function which can halt not only mistakes, but also
payments suspected of fraud before they reach their destination
Greater transparency into fees and charges deducted from payments,
simplifying and accelerating the task of reconciling inbound paymentswith internal records and facilitating cost-benchmarking of service
providers
The ability to benchmark intermediaries by following the speed andquality of service along the payments chain, enabling users to put
pressure on their providers and raise standards overall
A measure of protection against regulatory obligations to ensure
information about payers and payees is complete through an automatedpre-validation service that checks payments for completeness before
they are sent.
All these benefits ultimately translate into better services for clients.
Real-time tracking and fee transparency enable a faster response to any
client investigation. The ability to make faster payments means thatfunds can be released closer to cut-off times. In addition, capital
markets participants will be able to provide their own customers withenhanced cash management services, based on more accurate andtimely information. This in turn reduces their need for credit and collateraland enables them to reinvest funds more promptly.

Case study #4: Margin calls
Challenge

SWIFT gpi solution and benefits

Clearing brokers and triparty agents make daily cash margin calls, toensure the settlement of their clients’ obligations with theircounterparties. These obligations are often of substantial value, andmust be met before a specific cut-off time.

Predict which cash payments will settle on time and meet cut-off
deadlines
Cut the cost of sourcing liquidity from lenders
Manage daily liquidity requirements on a better-informed basis

6What comes next

Currently, the scope of gpi is cash payments. However, as
the service is adopted by the industry, it will be expanded toinclude securities, derivatives and foreign exchange (FX)transactions as well. Attaching UETRs to securities, FX andderivatives transactions is intrinsically more difficult,however, because they are often netted or partially settled
between execution and final settlement.

a chain that relies on each intermediary reconciling thedetails of the transaction with their own records, altering
them if necessary, and only then passing the information on
to the next link in the chain. Instead, all parties will haveaccess to the same information at the same time and beable to detect issues and take corrective actions without
waiting.

This could be overcome by extending gpi to coversecurities (MT 5XX), derivatives and FX (MT 3XX) message
types, and by SWIFT members agreeing to a common
method of linking the net payment UETR with theunderlying transactions through, for example, “parent-child”
references. This would enable net payments to beunbundled, with benefits that extend beyond operational
efficiency.

Real-time access to information about which payments areincoming, outgoing, or in need of repair, has one further
potential advantage. Richer and more timely data about
payments would make it easier for all institutions in thecapital markets to deploy artificial intelligence (AI) andmachine learning (ML) to identify the exceptions and theinformation which is missing, and then apply the missing
data by robotic process automation (RPA).

Eventually, gpi could supplant the present methods ofpost-trade information processing altogether. Messages
about a transaction will no longer need to be passed along

These ideas need to be further qualified with the industry sothat we can align on priorities and collaborate to co-create
solutions.

Case study #5: Fund management
Challenge

SWIFT gpi solution and benefits

To calculate net asset values (NAVs) for funds, fund accountants needaccurate daily cash forecasts based on large numbers of purchases
and sales. Fund managers in general need a clear statement of net
cash remaining after settlement of all outstanding trades so that thissurplus can be reinvested.

Early and accurate insight into inbound and outbound payments
improves the accuracy of cash forecasts
Enables investment decisions to be made closer to deadlines

Surplus cash can be reinvested with greater confidence for the benefit of
the fundConclusion
Errors and omissions in cash payments account for asignificant proportion of the reconciliation, investigation,and claim costs and risks that are incurred in capital
markets. SWIFT gpi offers an immediately available
solution to track payments and reduce or even eliminatethese costs and risks altogether.

More gpi service enhancements will be added as capital
market participants exploit the benefits of being able totrack payments in real-time, accelerate the transfer offunds and understand the costs they incur as they do so.
And the value generated by gpi will continue to increase
exponentially as the service evolves from its origins inpayments to encompass the other half of every
securities, derivatives and fund transaction.

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About SWIFT
SWIFT is a global member owned cooperative and theworld’s leading provider of secure financial messaging
services.
We provide our community with a platform formessaging and standards for communicating, and
we offer products and services to facilitate accessand integration, identification, analysis and regulatorycompliance.
Our messaging platform, products and services
connect more than 11,000 banking and securities
organisations, market infrastructures and corporate
customers in more than 200 countries and territories.
While SWIFT does not hold funds or manage
accounts on behalf of customers, we enable ourglobal community of users to communicate securely,exchanging standardised financial messages in a
reliable way, thereby supporting global and local
financial flows, as well as trade and commerce all
around the world.
As their trusted provider, we relentlessly pursue
operational excellence; we support our community
in addressing cyber threats; and we continually seek
ways to lower costs, reduce risks and eliminate
operational inefficiencies. Our products and services
support our community’s access and integration,business intelligence, reference data and financial
crime compliance needs. SWIFT also brings thefinancial community together – at global, regional
and local levels – to shape market practice, define
standards and debate issues of mutual interest orconcern.
Headquartered in Belgium, SWIFT’s international
governance and oversight reinforces the neutral,
global character of its cooperative structure. SWIFT’s
international office network ensures an active
presence in all the major global financial centres.

© SWIFT
57441 - September 2019

For more information about SWIFT,
visit www.swift.com.