Aggregate Short Position

The sum of a Settlement Member’s short positions, each such short position expressed in its base currency equivalent and adjusted by the applicable haircut.

Aggregate Short Position Limit

In respect of a Settlement Member, the maximum aggregate short position that such Settlement Member is permitted to incur at any time.

Authentication

The process of verifying the identity of an individual user, machine, software component, or any other entity.

Automated Clearing House (ACH)

An electronic clearing system in which a data processing center handles payment orders that are exchanged among financial institutions, primarily via telecommunications networks. ACH systems process large volumes of individual payments electronically. Typical ACH payments include salaries, consumer and corporate bill payments, interest and dividend payments, and Social Security payments.

Automated Teller Machine (ATM)

An Electronic Funds Transfer (EFT) terminal that allows customers using a pin-based debit (ATM) card to initiate transactions (e.g., deposits, withdrawals, account balance inquiries).

Bankcard

A general-purpose credit card, issued by a financial institution under agreement with the bankcard associations (Visa and MasterCard), which customers can use to purchase goods and services and to obtain cash against a line of credit established by the bankcard issuer.

Bilateral Key Security

A multi-level data encryption system, based on the exchange of Bilateral Keys, allowing users of SWIFT to create, send, and receive SWIFT messages. Bilateral Keys are unique authenticator keys possessed by only the two parties (either the provider or recipient of a message) involved and provide confirmation in both directions of the legitimacy of a message sent via SWIFT.

Check

A written order from one party (payer) to another (payee) requiring the payer’s financial institution to pay a specified sum on demand to the payee or to a third party specified by the payee.

Clearance

The process of transmitting, reconciling, and in some cases, confirming payment orders or financial instrument transfer instructions prior to settlement.

Compared and Noncompared Transaction

See Matching.

Consumer

Usually refers to an individual engaged in non-commercial transactions.

Correspondent Bank

An institution, acting on behalf of other institutions, that can settle the checks they collect for other institutions (respondents) by using accounts on their books or by sending a wire funds transfers. Generally, a provider of banking and payment services to other financial institutions.

Credit Card

A card indicating the holder has been granted a line of credit. It enables the holder to make purchases or withdraw cash up to a prearranged ceiling. The credit granted can be settled in full by the end of a specified period or can be settled in part, with the balance taken as extended credit. Interest is charged based on the terms of the credit card agreement and the holder is sometimes charged an annual fee.

Currency Balance

As at the time calculated, the current amount (positive or negative) of a particular eligible currency included in an account, as indicated on the books and records of CLS Bank. A currency balance is not a separate account.

Daylight Overdraft

A daylight overdraft occurs at any point in the business day when the balance in an institution’s account becomes negative. Daylight overdrafts can occur in accounts at Federal Reserve Banks as well as at private financial institutions. Daylight credit can also arise in the form of net debit positions of participants in private payment systems. A daylight overdraft occurs at a Federal Reserve Bank when there are insufficient funds in an institution’s Federal Reserve Bank account to cover outgoing funds transfers or incoming book-entry securities transfers. An overdraft can also be the result of other payment activity processed by the Federal Reserve Bank, such as check or automated clearinghouse transactions.

Depository

An institution that holds funds or marketable securities for safekeeping. Depositories may be privately or publicly operated, allow securities transfers through book-entry, and offer funds accounts permitting funds transfers as a means of payment.

Electronic Funds Transfer (EFT)

A generic term describing any transfer of funds between parties or depository institutions via electronic data systems.

Electronic Funds Transfer Act (EFTA)

The Electronic Funds Transfer Act and Regulation E are designed to ensure adequate disclosure of basic terms, costs, and rights relating to electronic fund transfer (EFT) services provided to consumers. Institutions offering EFT services must disclose to consumers certain information, including: initial and updated EFT terms, transaction information, periodic statements of activity, the consumer’s potential liability for unauthorized transfers, and error resolution rights and procedures. EFT services include automated teller machines, telephone bill payment, point-of-sale transfers in retail stores, fund transfers initiated through the Internet, and pre-authorized transfers to or from a consumer’s account.

Encryption

A data security technique used to protect information from unauthorized inspection or alteration. Information is encoded so that data appears as a meaningless string of letters and symbols during delivery or transmission. Upon receipt, the information is decoded using an encryption key.

Federal Reserve Banks

The Federal Reserve Banks provide a variety of financial services including retail and wholesale payments. The Federal Reserve Bank operates a nationwide system for clearing and settling checks drawn on depository institutions located in all regions of the United States.

Internet

A worldwide network of computer networks, governed by standards and protocols developed by the Internet Engineering Task Force (IETF).

Large Value Funds Transfer System

A wholesale payment system used primarily by financial institutions in which large values of funds are transferred between parties. Fedwire® and CHIPS are the two large-value transfer systems in the United States.

Long Position

In respect of a currency balance that is greater than zero, the amount by which such currency balance is greater than zero. A position that appreciates in value if market prices increase. When one buys a currency, their position is long.

Matched Instructions

Two Instructions in which the information set forth in a specific CLS Bank Rule is matched in accordance with the parameters and procedures set forth in the CLS Bank Rules

Matching

With respect to compared and non-compared transactions, the process of comparing the trade or settlement details provided by counterparties to ensure they agree with respect to the terms of the transaction. Also called comparison checking.

National Settlement Service (NSS)

The Federal Reserve Banks’ multilateral settlement service. NSS is offered to depository institutions that settle for participants in clearinghouses, financial exchanges, and other clearing and settlement groups. Settlement agents acting on behalf of those depository institutions electronically submit settlement files to the Federal Reserve Banks. Files are processed on receipt, and entries are automatically posted to the depository institutions’ Reserve Bank accounts. Entries are final when posted.

Net debit cap

The maximum dollar amount of daylight overdrafts an institution is permitted to incur in its Federal Reserve account at any point in the day or on average over a two-week period. The net debit cap is generally equal to an institution’s capital times the cap multiple for its cap category.

Office of Foreign Asset Control (OFAC)

The Office of Foreign Assets Control, United States Department of the Treasury, administers and enforces economic sanctions programs primarily against countries and groups of individuals such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.

Open Market Operations

The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system.

Originating Depository Financial Institution (ODFI)

A participating financial institution that originates entries at the request of and by agreement with its originators in accordance with the provisions of the NACHA rules.

Originator

A person that has authorized an ODFI to transmit a credit or debit entry to the deposit account of a receiver at an RDFI.

Payment

A transfer of value.

Payment System

The mechanism, the rules, institutions, people, markets, and agreements that make the exchange of payments possible.

Payments System Risk Policy (PSR)

The Federal Reserve’s Payments System Risk (PSR) policy addressing the risks that payment systems present to the Federal Reserve Banks, the banking system, and to other sectors of the economy.

Real-Time Gross Settlement (RTGS) System

A type of payments system operating in real-time rather than batch processing mode. It provides immediate finality of transactions. Gross settlement refers to the settlement of each transfer individually rather than netting. FedwireÒ is an example of a real-time gross settlement system.

Receiver

An individual, corporation, or other entity that has authorized a company or an originator to initiate a credit or debit entry to a transaction account held at its RDFI.

Receiving depository financial institution (RDFI)

Any financial institution qualified to receive debits or credits through its ACH operator in accordance with the ACH rules.

Regulation E

A regulation (12 CFR 205) promulgated by the Board of Governors of the Federal Reserve System to ensure consumers a minimum level of protection in disputes arising from electronic fund transfers.

Reserve Account

A non-interest earning balance account institutions maintain with the Federal Reserve Bank or with a correspondent bank to satisfy the Federal Reserve’s reserve requirements.

Retail Payments

Small-dollar payments made in the goods and services market.

Security Procedure Agreement

An agreement between a financial institution and a Federal Reserve Bank whereby the financial institution agrees to certain security procedures if it uses an encrypted communications line with access controls for the transmission or receipt of a payment order to or from a Federal Reserve Bank.

Settlement

The final step in the transfer of ownership involving the physical exchange of securities or payment. In a banking transaction, settlement is the process of recording the debit and credit positions of the parties involved in a transfer of funds. In a financial instrument transaction, settlement includes both the transfer of securities by the seller and the payment by the buyer. Settlements can be “gross” or “net.” Gross settlement means each transaction is settled individually. Net settlement means parties exchanging payments will offset mutual obligations to deliver identical items (e.g., dollars or Euros), at a specified time, after which only one net amount of each item is exchanged.

Settlement Eligible Instructions

See Matched Instructions.

Short Position

In respect of a currency balance that is less than zero, the amount by which such currency balance is less than zero. An investment position that benefits from a decline in market price. When one sells a currency their position is short.

Short Position Limit

In respect of an eligible currency, the maximum short position a Settlement Member may have at any time in that eligible currency and, unless otherwise reduced pursuant to the CLS Bank Rules, shall equal (i) the total amount of all available committed liquidity facilities in such eligible currency (or such lesser amount that CLS Bank may determine from time to time) minus (ii) the amount of the largest available committed liquidity facility among such liquidity facilities (after taking into account any amounts already drawn.

Spot

The most common foreign exchange transaction. Spot or spot date refers to the spot transaction value date that requires settlement within two business days, subject to value date calculation.

Test Key

Internal controls used to verify the authenticity of incoming wire requests involve the use of test keys. A test key is a formula used to develop or interpret test codes or test words. Test codes or words consist of a series of numbers signifying different types of information and usually precede the text of the message. As an example, a test code may contain a bank number, the amount of the transaction, and a number indicating the day and week of the month. As an additional precaution, many test codes contain a variable (sequence number) based on the number of messages received.

XML

XML (Extensible Markup Language) is a ”metalanguage” – a language for describing other languages – which lets you design your own customized markup languages for different types of documents. It is designed to improve the functionality of the Web by providing more flexible and adaptable information identification.