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ESAS overview, governance and channels

This page has information about the benefits of ESAS and real-time gross settlement, ESAS governance and its main participants, and the channels that ESAS account holders use to submit transactions.

Objective of ESAS

We operate and maintain the Exchange Settlement Account System (ESAS) to make it easier for financial institutions to achieve Real-Time Gross Settlement (RTGS) and operate their ES accounts efficiently.

We have established a legal and contractual environment for ESAS that ensures — as far as possible — that settlements using ESAS are final and irrevocable at the point when they occur. ESAS is a Designated Payment System which enhances transaction finality.

The benefits of ESAS

Reducing settlement risk

Real-time gross settlement (RTGS) was introduced to New Zealand in 1998 to reduce the settlement risk posed by deferred, high-value payments between banks.

In RTGS, final and irrevocable settlement of transactions is achieved in real time by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank.

Before RTGS was introduced to New Zealand, banks would total their inter-bank obligations at the end of each day and then settle net amounts with each other through their accounts at the Reserve Bank. Now, with RTGS, individual settlement requests between banks are settled electronically as the settlement requests happen.

Improving the stability of the financial system

RTGS makes the financial system as a whole more robust. Previously, if a bank collapsed during the working day, other banks could have been owed very large sums of money from incomplete settlement requests with the failed bank. This could potentially put these other banks at risk, or result in these banks trying to reverse payments, which would create financial chaos.

RTGS allows large payments to be completed transaction-by-transaction throughout the day and be irreversibly posted to banks' accounts at the Reserve Bank before value is credited/debited to customers.

Governance of ESAS

ESAS is a designated settlement system under Part 5C of the Reserve Bank Act 1989. Designation also gives legislative backing to the finality of settlements effected in accordance with the rules of the system.

Read more about designated settlement systems

Our Prudential Supervision Department are the regulators of ESAS. We have controls to ensure our Financial Services Group and Prudential Supervision Department operate at arm's length.

Each ESAS account holder has an Exchange Settlement Account with us, with accounts governed by ESAS terms and conditions.

How it works

ESAS provides:

  • ES account maintenance, transaction and ancillary services
  • an electronic interface to banks, payment systems or financial institutions (as required)
  • functionality for queuing, processing and rejecting transactions.

ESAS participants

Current ESAS account holders include several registered banks, the Reserve Bank, CLS Bank and New Zealand Depository Limited. However, access rules permit other organisations that meet certain criteria to have accounts as well.

See register of designated settlement systems in New Zealand

Channels for submitting ESAS transactions

Account holders submit transactions to ESAS through a number of feeder systems known as 'authorised submitting systems'. These include:

  • NZClear, New Zealand's central securities depository and the main securities settlement platform for the financial services industry. We are the system operator of NZClear
  • the ESAS-SWIFT Interface using the SWIFT Y copy protocol for a closed user group we administer
  • the Settlement Before Interchange (SBI) interface, which settles transactions submitted to ESAS for files containing retail transactions between consensual pairs of account holders. Once the transaction is settled in ESAS, the associated file of retail transactions is released to the destination bank. The SBI service involves a closed user group administered by Payments NZ Limited. SBI uses SWIFT FileAct and SWIFT Y copy.