Business transactionsPublished 9 June 2009 Trade services management
Migration to open account has often left banks involved only at the settlement end of the transaction. In order to re-intermediate themselves, banks need to add value by extending their existing trade services to support broader supply chain integration.
The Trade Services Utility (TSU) is a collaborative centralised matching utility that is designed to help banks meet the supply chain challenge. Banks will build individually on the core functionality of the TSU to offer competitive services that will be complementary to their existing offerings to their corporate customers.
With TSU Release 2, made commercially available on 1st March 2009, a number of significant enhancements were made. These include the ability to accommodate more than two banks to a single transaction. In addition to the buyer’s bank and seller’s bank, the TSU supports the inclusion of a submitting bank, and significantly, the inclusion of a Bank Payment Obligation (BPO) obligor bank.
It is the role of the obligor bank to provide an irrevocable undertaking to pay the seller’s bank provided all of the associated conditions of payment have been satisfied. The BPO constitutes a legally binding and enforceable obligation to pay, subject to the appropriate standard of law. Hence, it may be seen that in the BPO the financial services industry has access to an instrument that in open account settlement, is comparable to the traditional Letter of Credit.
The main concepts of the TSU are as follows:
- All TSU message flows are either from financial institution to the TSU or from the TSU to financial institution. There is no direct financial institution to financial institution messaging within the TSU.
- A TSU transaction identifies both a buyer's bank and a seller's bank. In lodge mode, messaging is between the single lodging financial institution and the TSU. The lodging financial institution is referred to as the primary bank. In push-through mode, both buyer's bank and seller's bank are involved in messaging flows, and both are referred to as primary banks. If the primary banks agree, additional banks may be involved in a TSU transaction as submitting banks and/or obligor banks and will be part of the messaging flows.
- A transaction begins with one bank submitting a ‘baseline’, a term used for data elements reflecting a purchase agreement between trading partners. As soon as the TSU receives the corresponding baseline from the correspondent bank, it compares both baselines to identify and report inconsistencies. A baseline is described as established after the TSU has successfully matched both baselines. Conceptually, an established baseline is one that reflects the common understanding of the banks involved.
- Some TSU messages contain data sets. There are four types of data sets: commercial, transport, insurance, and certificate. A data set contains data that financial institutions obtain from different sources, such as their corporate customers, and submit to the TSU. The TSU allows these data sets to be compared with the baseline.
- Primary banks control a TSU transaction in a number of ways, for example, changing its state, or requesting an amendment. Generally, if two primary banks are involved in a TSU transaction, they are permitted to act unilaterally before the baseline is established. Their agreement however is required to affect a change after the baseline has been established.
- The TSU creates reports that are either requested from the TSU by a bank or generated by the TSU when certain events occur. The reports enable banks to take action, be notified of occurrences and track transaction events.
Fifty MX messages have been developed with and by the banking community to support the TSU.
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