41 years of swift standards m engeli

Swiss Forum for Financial Standards 7.Nov. 2014 M. Engeli 1

41 Years of SWIFT Standards


Starting Phase of MSP

MSP = Message Switching Project

Start in 1970 under leadership of Jan Kraa

My involvement started in August 1971

as technical expert for the four large Swiss banks

LOGICA was selected for the technical issues

Stanford Research for organisational and legal aspects

Steering Committee with subcommittees

On March 18, 1972: Mr. Mc Mahon shall head the Standards Working Party


LOGICA Report of Febr. 72

Expected 100‘000 messages/day at end of 75 Estimated average costover 1st 5 years 11BEF Expected cutover of fist countries in 75 and of last countries 15 months later Foresaw test key procedures similar to telex Planned operation 6 days/week, 22 hours/day Allowed telex (only upper case letters), teleprinters magnetic tape transmission units users‘ computers


Environment in 1971-73 Banks:

Nostro/Vostro accounts decentralised

Exchange by telex or letters

Test keys with simple algorithms

Reconciliation often far behind

Computers:

Typical memory 64 kB

Barely 1 Million operations per second

Disks, magnetic tapes, later removable disks

Punched cards

Point to point communication starting


Standards Situation in 72

Existing relevant Standards

ISO Standard for date

2-letter ISO code for countries just on the way

ISO-7 character-set

SITA codes for cities (not appropriate)

Some banking standards used locally, often batch-oriented

Missing

country code, currency code, bank address

postal address

This was both, a handicap and a chance


The Standards Working Party

Mike Mc Mahon Standards Director, American Bankers Assoc.

considerable standards experience

Harold Stokes Standards Coordinator (IBRO) Inter-Bank Research Org., Secretary of the WP

Max Engeli Coordinator Swiss Banks FIDES

Ivan Ekebrink Assistant Vice President Skandinaviska Enskilda Banken

Ernst Deeg Technical Planning Dresdner Bank

Jean-Claude Moniez Dept. of Organisation Credit Commercial de France

John Wells Liaison LOGICA


Personal Background

Education in Mathematics and Physics, Numerical Analysis

Principal interest in computers, 1st program written in 55

Syntax and semantics of programming languages, compilers

Automata and language theory

Involved in Standards from 1971 to 99

STEP 1985 – 99 Exchange of data for mechanical construction

Academic career until 68, then industry (CAD/CAM System)

But continuous teaching of computer science courses during 75 semesters

1990 Professor for Computer Science in Manufacturing at ETH


The Goals of the Standards Working Party

Working party had to define the goals In order to close the loop bank transfers and statement messages were required in additon to customer transfers, also messages for queries and answers

Ideal environment for development of the standards • No existing structures to consider • No influence of major players, but intense discussions • No politics, no lobbying, no power play • Competent and motivated people • Sufficient time available

Virtual development --- No system available to test


Subdivision of the Task

• Customer Address (with account number line) • Bank address (big task) • Currency code (relatively easy) • Character code (easy, but telex) • Message syntax and composition (main task) • Format checking (should envelope be opened?) • Scrambling of messages (referred to Steering C.) • Test keys, authenticator • Telex (more a question how to connect) • Glossary of terms • Secretariat (Harold Stokes, IBRO)


My Personal Contributions

Proposal for currency code i.e. ISO country code + 1 char Bank code as Chairman of Bank Code Subcommittee

Already in 71 I started to collect the relevant information on international payments from the Swiss banks

When the Message Subcommittee presented their proposal for a

Customer payment message, it was obvious, that this could not be the

solution

I had to define much broader goals to create a generic structure for systematic and logically clear messages which could easily be extended to other banking activities

My proposal presented at the next meeting was convincing enough to serve as the basis of all subsequent work


Society for Worldwide Interbank Financial

Telecommunication

PROPOSED STANDARDS for the

M E S S A G E T E X T

February 25, 1974

Version 4

This supersedes the „Proposed Standards“,

dated September 14 1973


CONTENTS (I)

PART A : INTRODUCTION (2 pages)

1. PREFACE

2. WHY STANDARDS ?

3. RELATION TO OTHER DOCUMENTS

PART B : GENERAL RULES (19 pages)

1. FRAMEWORK FOR STANDARDS

1.1 Assumptions for Text Standards

1.2 Technical Restrictions

1.3 Further Factors

2. MESSAGE TYPES

2.1 Categories and Routing

2.2 Message Groups

2.3 Message Types

3. STRUCTURE OF MESSAGES AND FIELDS

3.1 Message Structure

3.2 Field Structure

3.3 List of Fields


4. DESCRIPTION OF FIELDS

4.1 Security Fields

4.2 Reference Fields

4.3 Date and Value Fields

4.5 Bank and Customer Fields

4.6 Statement Fields

4.7 Information and Instruction Fields

4.8 Summary Fields

PART C : FORMAT DEFINITION (31 pages)

0. INTRODUCTION

0.1 Contents

0.2 Form of the Definition

0.3 Message Flow and Account Relations

1. CUSTOMER TRANSFERS

1.1 The Customer Transfer Group

CONTENTS (II)


2. BANK TRANSFERS

2.1 The Bank Transfer Orders

2.2 Loans and Deposits

2.3 Foreign Exchange Transactions

2.4 Foreign Exchange Forward Deals

9. SPECIAL MESSAGES

9.1 Statement Message

10. COMMON GROUP

10.1 Charges

10.2 Request for Cancellation

10.3 Queeries

10.4 Answers

10.5 Free Format Message

APPENDIX A : SUMMARY (2 pages)

APPENDIX B : GLOSSARY OF TERMS (5 pages)

CONTENTS (III)


Partial Table of Fields with Tags

Security

10 Copy of Header

15 Test Key

References

20 Transaction Reference Number (TRN)

21 TRN Supplement

22 Reference to Related Message/Transaction

25 Statement Number/Page Number

28 Account Identification

Dates and Values

30 Date

32 First Amount Field

33 Second Amount Field

36 Exchange Rate

37 Interest Rate

Banks and Customers

50 Ordering Customer (By Order of)

52 Ordering Bank

53 Sender‘s Corrspondent Bank (Reimbursement)

54 Receiver‘s Corrsepondent Office


Message Flow Diagram


Specific Facts at the Start of the Operation Life-time for the standards was expected to be at least 10 years Telex had no direct influence on the standard, but restricted the charater set and limited the line length US banks demanded for some time that in addition to the authenticator the old test key had to be added to the messages


The Standards --- A few Years later

Maintenance had not been an issue initially.

I was overwhelmed by the amount of maintanance which followed year by year Awareness of the initial logical design was lacking and first signs of deterioration appeared A proposal for a standards review committee was simply not understood. The bankers knew well enough what they needed!


Standards --- Looking back

After a few years it became obvious that telex was not a workable solution The importance of the SWIFT standards was soon realised It was generally expressed that even if SWIFT would disappear, the standards would remain


The STEP Standard for Product Life-Cycle Data

Started in 1985

Goal: Accurate and complete description of a complex piece of machinery (car, airplane, ship), which can amount to 1000s of GB. Geometric data form the core part.

EXPRESS data modelling language (ISO 10303-11) allows the definition of data-tapes, entity attributes and algorithmic constraints

XML to be used for documentation purposes

In worldwide use today, mainly the geometry part

Chicago Stock Exchange uses STEP ?


The ideal standard

Is written in clear and unambiguous language and, therefore, understandable by everybody in this wold

Covers the information flow of a transaction from end to end

Motivates correct use

Has minimal life-time costs to the totality of those affected by the standard

Has eternal life-time, and, therefore, no maintenance unless environmental changes dictate changes

We all know --- This is a dream But we shall strive for it!


Syntax and Semantics

Syntax is the study of the rules for the formation of sentences in a language Semantics is the study of meaning.

The syntax of artificial languages (this includes standards) can be described with absolute accuracy. Hence, checks can definitely determine the presence of syntactical errors. But the meaning of syntactically correct sentences may be complete nonsense.

Unfortunately , we do not have a good formal way to describe semantics, except in very simple cases. Consequently, we have to resort to the English language, which is never free of ambiguities.


Life Cycle of IT Standards

Time A

C

B

D

Cost/Benefit per Unit of Time

4 Phases: A Definition B Initial Implementation C Changes and Additions D Deterioration Before the end of phase C, the design of the successor should be started


Cost of a New Message Type very rough estimate in MY

From definition of scope to publication of a single message type 1 Including portion of overall design costs

Implementation at all SWIFT systems (0 to 4 MY) 2

Implementation at all user front-ends (1000 times 0 to 500) 250

Implementation at all users processing systems (2000 times) 1000

Reading of standards documentation and training during life-time 833 of the standard (10000 times 1 month

TOTAL 2086

This does not include the repair of messages because the sender misinterpreted standards


Conclusion

The one MY (0.05% of the total) is responsible for the cost of the rest The cost of a mediocre standards may easily be 3 times the cost of a reasonably good one The best experts for the creation of standards are just barely good enough Who are the best experts? It takes two different types of persons a) Very knowledgeable experts in the field of application who can judge the implications of alternative solutions b) Logically trained experts familiar with the design who can help to keep new ideas within the design, and so avoid deterioration

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