Glossary - Payment Mechanism Terms

Automated Clearinghouse (ACH)
A computer-based clearing and settlement operation, often operated by a Federal Reserve Bank, established for the exchange of electronic transactions among participating depository institutions. Such electronic transactions can be substituted for paper checks used to make recurring payments such as payroll or preauthorized insurance premiums. The U.S. Treasury uses the ACH extensively to pay certain obligations of the government.

Automated Teller Machines (ATMs)
Computer-controlled terminals located on the premises of financial institutions or elsewhere, through which customers may make deposits, withdrawals, or other transactions as they would through a bank teller. Other terms sometimes used to describe such terminals are customer-bank communications terminal (CBCT) and remote service unit (RSU). Groups of banks sometimes share ATM networks located throughout a region of the country that may include portions of several states.

Automatic Transfer Service (ATS) Account
A depositor's savings account from which funds may be transferred automatically to the same depositor's checking account to cover a check written or to maintain a minimum balance.

Bankwire
An electronic communications network owned by an association of banks and used to transfer messages between subscribing banks. Bankwire also offers a clearing service called Cashwire that includes a settlement facility.

Check Clearing
The movement of checks from the banks or other depository institutions where they are deposited back to those on which they are written, and funds movement in the opposite direction. This process results in credits to accounts at the institutions of deposit and corresponding debits to the accounts at the paying institutions. The Federal Reserve participates in check clearing through its nationwide facilities, though many checks are cleared by private sector arrangement.

Clearinghouse
An institution where mutual claims are settled between accounts of member depository institutions. Clearinghouses among banks have traditionally been organized for check-clearing purposes, but more recently have cleared other types of settlements, including electronic fund transfers.

Clearinghouse Interbank Payments System (CHIPS)
An automated clearing system used primarily for international payments. This system is owned and operated by the New York Clearinghouse banks. It engages Fedwire for settlement.

Debit Card
A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occuring contemporaneously with the customer's purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment.

Electronic Fund Transfer Systems (EFTS)
A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, Bankwire, automated clearinghouses (ACHs), and other automated systems.

Fedwire
The Federal Reserve funds transfer system. Fedwire is used for transferring reserve account balances of depository institutions and government securities. Fedwire is also used for the settlement of other clearing systems, such as CHIPS.

Federal Reserve Float
Checkbook money that for a period of time appears on the books of both the payor and payee due to the lag in the collection process. Federal Reserve float often arises during the Federal Reserve's check collection process. In order to promote an efficient payments mechanism with certainty as to the date funds become available, the Federal Reserve has employed the policy of crediting the reserve accounts of depository institutions depositing checks according to an availability schedule before the Federal Reserve is able to obtain payment from others.

FRCS-80
This is the communications network of the Federal Reserve. It interconnects Federal Reserve Bank offices, the Board of Governors, depository institutions, and the Treasury. It is used for Fedwire transfers, transfers of U.S. securities, as well as for transfer of Federal Reserve administrative, supervisory, and monetary policy information.

Payments Mechanism
Systems designed for the movement of funds, payments, and money between financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments mechanism through distribution of currency and coin, check processing, wire transfer of funds, and the operation of automated clearinghouses that transfer funds electronically among depository institutions. Federal Reserve payments mechanism services are made available to both member banks and nonmember depository institutions on the basis of uniform pricing schedules.

Regional Check Processing Center (RCPC)
A Federal Reserve check processing operation that clears checks drawn on depository institutions located within a specified area. RCPC's expedite collection and settlement of checks within the area on an overnight basis.

Swift
A message writing system that connects worldwide participating banks. It is used primarily for the purpose of communicating payment information. Frequently, the SWIFT message is only part of an international payment process which might also employ a system such as CHIPS to fully implement the transaction.

Glossary - Securities Credit Terms

Broker-Dealer
Any person, other than a bank, engaged in the business of buying or selling securities on its own behalf or for others.

Brokers' Loans
Money borrowed by brokers from banks for uses such as financing specialists' inventories of stock, financing the underwriting of new issues of corporate and municipal securities, and financing customer margin accounts.

Day Trade
Also know as a "daylight trade." The purchase and sale or the short sale and cover of the same security in a margin account on the same day.

Exempted Security
A security that is exempted from most provisions of the securities laws, including the margin rules. Such securities include U.S. government and agency securities, and some municipal securities designated by the SEC.

Federal Margin Call
A broker's demand upon a customer for cash, or securities needed to satisfy the required Regulation T down payment for a purchase or short sale of securities. The word federal is usually omitted from the phone call. Generally, the broker will call up and say " margin call ". Anyone receiving a margin call has to transfer additional funds into his account to meet the Regulation T minimum margin requirements.

Futures
Contracts that require delivery of a commodity of specified quality and quantity, at a specified price, on a specified future date. Commodity futures are traded on a commodity exchange and are used for both speculation and hedging.

Margin
With regard to securities, this term refers to a fractional amount of full value, or the equity outlay (downpayment) required for an investment in securities purchased on credit. Different exchanges, and investment instruments have different margin requirements. Additionally, brokerage firms may use the minimum exchange level for their clients margin accounts or they may have higher levels. Refer to each specific exchange, broker, and investment vehicle, for the specific margin requirements.

Margin Stock
Any stock listed on a national securities exchange, any over-the-counter security approved by the SEC for trading in the national market system, or appearing on the Board's list of over-the-counter margin stock and most mutual funds. There are certain requirements a stock must meet before it can be margined. The most important of which is that the price must be greater than $5.00

National Association Of Securities Dealers (NASD)
A self-regulatory organization with jurisdiction over certain broker-dealers. The NASD requires member brokers to register, and conducts examinations for compliance with net capital requirements and other regulations. It also conducts market surveillance of the over-the-counter (OTC) securities market. NASDAQ is a subsidiary of the NASD which facilitates the trading of approximately 5,000 of the most active OTC issues through an electronically connected network.

Over-The-Counter (OTC) Stocks
Stocks not traded on a national securities exchange.

OTC Margin Bond
A debt security not traded on the national securities exchange which meets certain Regulation T requirrements as to size of original offering, available information, and status of interest payments.

Purpose Credit
Credit used for the purpose of buying, carrying, or trading in securities.

Securities And Exchange Commission (SEC)
An independent agency of the U.S. government consisting of five members appointed by the President that administers comprehensive legislation governing the securities industry.

Self-Regulatory Organizations (SRO)
Nongovernment organizations that have statutory responsibility to regulate their own members such as the NYSE, AMEX, and NASD.

Street Name
Securities held in the name of brokers, or banks, or their nominees, instead of in the customer's name.

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