Payments Academy
RTGS: component of T2 PAYMENT OPERATIONS STARTED LIVE 01 RTGS - which stands for Real-Time Gross Settlement ACTIVE 02 RTGS participant - Every RTGS participant holds at least one QUEUED 03 Without enough funds - DCA, a payment cannot settle. QUEUED 04 Pacs.002 rejection - message that fails validation is rejected QUEUED 05 RTGS operating day - banks plan their work around them. QUEUED 06 Payment after T2 cut-off - sent after the cut off waits until the next QUEUED RTGS, which stands for Real-Time Gross Settlement, is the component of T2 that settles large value euro payments. Step 1 of 6 RTGS: component of T2 STARTED RTGS which stands for Real-Time Gross Settlement ACTIVE RTGS participant Every RTGS participant holds at least one QUEUED Without enough funds DCA, a payment cannot settle. QUEUED Pacs.002 rejection message that fails validation is rejected QUEUED RTGS operating day banks plan their work around them. QUEUED Payment after T2 cut-off sent after the cut off waits until the next QUEUED RTGS, which stands for Real-Time Gross Settlement, is the component of T2 that settles large value euro payments.
RTGS participant holds at least PAYMENT OPERATIONS IN PROGRESS LIVE 01 RTGS - which stands for Real-Time Gross Settlement DONE 02 RTGS participant - Every RTGS participant holds at least one ACTIVE 03 Without enough funds - DCA, a payment cannot settle. QUEUED 04 Pacs.002 rejection - message that fails validation is rejected QUEUED 05 RTGS operating day - banks plan their work around them. QUEUED 06 Payment after T2 cut-off - sent after the cut off waits until the next QUEUED Every RTGS participant holds at least one RTGS Dedicated Cash Account, known as an RTGS DCA. Step 2 of 6 RTGS participant holds at least IN PROGRESS RTGS which stands for Real-Time Gross Settlement DONE RTGS participant Every RTGS participant holds at least one ACTIVE Without enough funds DCA, a payment cannot settle. QUEUED Pacs.002 rejection message that fails validation is rejected QUEUED RTGS operating day banks plan their work around them. QUEUED Payment after T2 cut-off sent after the cut off waits until the next QUEUED Every RTGS participant holds at least one RTGS Dedicated Cash Account, known as an RTGS DCA.
Without enough funds PAYMENT OPERATIONS IN PROGRESS LIVE 01 RTGS - which stands for Real-Time Gross Settlement DONE 02 RTGS participant - Every RTGS participant holds at least one DONE 03 Without enough funds - DCA, a payment cannot settle. ACTIVE 04 Pacs.002 rejection - message that fails validation is rejected QUEUED 05 RTGS operating day - banks plan their work around them. QUEUED 06 Payment after T2 cut-off - sent after the cut off waits until the next QUEUED Without enough funds on the DCA, a payment cannot settle. Step 3 of 6 Without enough funds IN PROGRESS RTGS which stands for Real-Time Gross Settlement DONE RTGS participant Every RTGS participant holds at least one DONE Without enough funds DCA, a payment cannot settle. ACTIVE Pacs.002 rejection message that fails validation is rejected QUEUED RTGS operating day banks plan their work around them. QUEUED Payment after T2 cut-off sent after the cut off waits until the next QUEUED Without enough funds on the DCA, a payment cannot settle.
pacs.002 rejection report PAYMENT OPERATIONS IN PROGRESS LIVE 01 RTGS - which stands for Real-Time Gross Settlement DONE 02 RTGS participant - Every RTGS participant holds at least one DONE 03 Without enough funds - DCA, a payment cannot settle. DONE 04 Pacs.002 rejection - message that fails validation is rejected ACTIVE 05 RTGS operating day - banks plan their work around them. QUEUED 06 Payment after T2 cut-off - sent after the cut off waits until the next QUEUED A message that fails validation is rejected with a pacs.002 status report. Step 4 of 6 pacs.002 rejection report IN PROGRESS RTGS which stands for Real-Time Gross Settlement DONE RTGS participant Every RTGS participant holds at least one DONE Without enough funds DCA, a payment cannot settle. DONE Pacs.002 rejection message that fails validation is rejected ACTIVE RTGS operating day banks plan their work around them. QUEUED Payment after T2 cut-off sent after the cut off waits until the next QUEUED A message that fails validation is rejected with a pacs.002 status report.
RTGS operating day has clear phases PAYMENT OPERATIONS IN PROGRESS LIVE 01 RTGS - which stands for Real-Time Gross Settlement DONE 02 RTGS participant - Every RTGS participant holds at least one DONE 03 Without enough funds - DCA, a payment cannot settle. DONE 04 Pacs.002 rejection - message that fails validation is rejected DONE 05 RTGS operating day - banks plan their work around them. ACTIVE 06 Payment after T2 cut-off - sent after the cut off waits until the next QUEUED The RTGS operating day has clear phases, and banks plan their work around them. Step 5 of 6 RTGS operating day has clear phases IN PROGRESS RTGS which stands for Real-Time Gross Settlement DONE RTGS participant Every RTGS participant holds at least one DONE Without enough funds DCA, a payment cannot settle. DONE Pacs.002 rejection message that fails validation is rejected DONE RTGS operating day banks plan their work around them. ACTIVE Payment after T2 cut-off sent after the cut off waits until the next QUEUED The RTGS operating day has clear phases, and banks plan their work around them.
Payment after T2 cut-off PAYMENT OPERATIONS COMPLETE LIVE 01 RTGS - which stands for Real-Time Gross Settlement DONE 02 RTGS participant - Every RTGS participant holds at least one DONE 03 Without enough funds - DCA, a payment cannot settle. DONE 04 Pacs.002 rejection - message that fails validation is rejected DONE 05 RTGS operating day - banks plan their work around them. DONE 06 Payment after T2 cut-off - sent after the cut off waits until the next ACTIVE A payment sent after the cut off waits until the next day. Step 6 of 6 Payment after T2 cut-off COMPLETE RTGS which stands for Real-Time Gross Settlement DONE RTGS participant Every RTGS participant holds at least one DONE Without enough funds DCA, a payment cannot settle. DONE Pacs.002 rejection message that fails validation is rejected DONE RTGS operating day banks plan their work around them. DONE Payment after T2 cut-off sent after the cut off waits until the next ACTIVE A payment sent after the cut off waits until the next day.

Key points of this lesson, in order.

0:00 / 3:30 Step 1 of 6

Inside T2: RTGS Real-Time Gross Settlement

TARGET Services: T2, T2S and TIPS, Lesson 4 of 7, Narration 3:30, D05 Domestic payment systems

IrrevocableSettlementValue date

What you will learn

Your objective. By the end of this lesson, you will be able to explain inside T2: RTGS real-time gross settlement. RTGS, which stands for Real-Time Gross Settlement, is the component of T2 that settles large value euro payments.

Why it matters. This matters because the rail decides how fast the money moves, what it costs, when it settles and what can go wrong. Choosing the wrong rail is a product and an operations failure.

Chapter objective: Learner explains TARGET Services, distinguishes T2, T2S and TIPS, and describes the MCA, ESMIG access, and multi currency operation after TARGET2 closed on 20 March 2023. Learner uses real amounts, banks and message names to show how the services work in practice.

Key learning points

  • RTGS: component of T2
  • RTGS participant holds at least
  • Without enough funds
  • pacs.002 rejection report
  • RTGS operating day has clear phases
  • Payment after T2 cut-off

Key terms

Irrevocable: A payment or instruction that cannot be cancelled or reversed once it has been made, except by agreement of all parties or by a court order.

Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.

Value date: The date on which funds become available to the beneficiary and on which interest starts to accrue. It is the date used for settlement and for nostro posting.

Payment flow diagram showing Inside T2: RTGS Real-Time Gross Settlement.

Practise this lesson

Exercise

Decide which settlement model fits the scenario in this lesson and explain why.

Use the settlement models, the liquidity trade-off and the finality rules in this lesson.

  1. What to do. Name the model, state when settlement becomes final, and explain what happens if the sending bank does not have enough liquidity.

Correct result. Real time gross settlement settles each payment individually in central bank money with immediate finality, but it needs liquidity for every payment. Deferred net settlement nets payments and settles the net position, which needs less liquidity but leaves settlement risk until the net settles.

Why. Settlement is where money actually moves. The model decides the risk, the liquidity need, and when the payment is truly final.

Check your understanding

Practice question

Which of the following best describes inside T2: RTGS real-time gross settlement?

Takeaway and next step

What to remember

A payment sent after the cut off waits until the next day.

Settle a payment like the one in this lesson and watch the liquidity and finality behaviour.

Open the T2/TIPS Simulator →

Builds on "Inside T2: CLM Central Liquidity Management and the Main Cash Account (MCA)".

Transcript and full text

Show transcript

RTGS, which stands for Real-Time Gross Settlement, is the component of T2 that settles large value euro payments. Gross means each payment settles on its own, in full, as soon as it is processed. There is no netting, no batch and no waiting for the end of the day. A EUR 8 million payment from Barclays Bank in Frankfurt, BIC BARCDEFFXXX, to JPMorgan in Frankfurt, BIC CHASDEFXLS2, settles when RTGS debits the Barclays RTGS Dedicated Cash Account and credits the JPMorgan RTGS Dedicated Cash Account. Settlement is immediate, final and irrevocable from that moment. Every RTGS participant holds at least one RTGS Dedicated Cash Account, known as an RTGS DCA. The DCA is the account that is debited and credited when a payment settles. A bank moves liquidity from its Main Cash Account to its RTGS DCA with a camt.050 liquidity credit transfer, and it moves surplus funds back at the end of the day. A bank that plans to pay EUR 60 million during the day will prefund its RTGS DCA with EUR 60 million from its MCA in the morning, then top it up during the day as incoming payments arrive. Without enough funds on the DCA, a payment cannot settle. RTGS accepts two main payment messages. A pacs.008, the Customer Credit Transfer, carries a customer payment, such as a EUR 1.2 million payment from a German exporter to an Italian supplier. A pacs.009, the Financial Institution Credit Transfer, carries a bank to bank payment, such as a EUR 30 million payment between two banks settling a money market loan. Both messages arrive through ESMIG with a Business Application Header, and RTGS validates the sender, the account, the currency and the value date before it checks the balance. A message that fails validation is rejected with a pacs.002 status report. When the RTGS DCA does not hold enough funds, the payment waits in a queue instead of being rejected at once. RTGS holds queues by priority, with urgent payments ahead of high priority payments, and high priority payments ahead of normal payments. A EUR 12 million urgent payment to settle a securities transaction will jump ahead of a EUR 500,000 normal customer payment. RTGS also runs optimisation algorithms that look for offsetting payments in the queue, so that a payment from Bank A to Bank B and a payment from Bank B to Bank A can settle together, using far less liquidity than either payment would need on its own. The RTGS operating day has clear phases, and banks plan their work around them. The day starts with a preparation phase, when liquidity moves from the MCA to the RTGS DCA and standing orders run. The main settlement window then runs through the business day, when customer and interbank payments settle in real time. Customer payments have a cut off time in the late afternoon, while interbank payments continue later into the evening. After the cut off, RTGS runs its end of day routines, returns unused liquidity to the MCA, and prepares the accounts for the next business day. A payment sent after the cut off waits until the next day.

RTGS, which stands for Real-Time Gross Settlement, is the component of T2 that settles large value euro payments. Gross means each payment settles on its own, in full, as soon as it is processed. There is no netting, no batch and no waiting for the end of the day. A EUR 8 million payment from Barclays Bank in Frankfurt, BIC BARCDEFFXXX, to JPMorgan in Frankfurt, BIC CHASDEFXLS2, settles when RTGS debits the Barclays RTGS Dedicated Cash Account and credits the JPMorgan RTGS Dedicated Cash Account. Settlement is immediate, final and irrevocable from that moment.

Every RTGS participant holds at least one RTGS Dedicated Cash Account, known as an RTGS DCA. The DCA is the account that is debited and credited when a payment settles. A bank moves liquidity from its Main Cash Account to its RTGS DCA with a camt.050 liquidity credit transfer, and it moves surplus funds back at the end of the day. A bank that plans to pay EUR 60 million during the day will prefund its RTGS DCA with EUR 60 million from its MCA in the morning, then top it up during the day as incoming payments arrive. Without enough funds on the DCA, a payment cannot settle.

RTGS accepts two main payment messages. A pacs.008, the Customer Credit Transfer, carries a customer payment, such as a EUR 1.2 million payment from a German exporter to an Italian supplier. A pacs.009, the Financial Institution Credit Transfer, carries a bank to bank payment, such as a EUR 30 million payment between two banks settling a money market loan. Both messages arrive through ESMIG with a Business Application Header, and RTGS validates the sender, the account, the currency and the value date before it checks the balance. A message that fails validation is rejected with a pacs.002 status report.

When the RTGS DCA does not hold enough funds, the payment waits in a queue instead of being rejected at once. RTGS holds queues by priority, with urgent payments ahead of high priority payments, and high priority payments ahead of normal payments. A EUR 12 million urgent payment to settle a securities transaction will jump ahead of a EUR 500,000 normal customer payment. RTGS also runs optimisation algorithms that look for offsetting payments in the queue, so that a payment from Bank A to Bank B and a payment from Bank B to Bank A can settle together, using far less liquidity than either payment would need on its own.

The RTGS operating day has clear phases, and banks plan their work around them. The day starts with a preparation phase, when liquidity moves from the MCA to the RTGS DCA and standing orders run. The main settlement window then runs through the business day, when customer and interbank payments settle in real time. Customer payments have a cut off time in the late afternoon, while interbank payments continue later into the evening. After the cut off, RTGS runs its end of day routines, returns unused liquidity to the MCA, and prepares the accounts for the next business day. A payment sent after the cut off waits until the next day.

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