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What is Settlement Method in MX Message?

'Settlement method' element (SttlmMtd) is a new element introduced in MX messages and there is no equivalent of it in MT messages. 

This element is used to denote with whom the settlement account is maintained. This element is used in many of the MX messages. There are four types of settlement methods which indicate who is responsible to do the settlement of the payment. INDA means ‘Instructed Agent’. INGA means ‘Instructing Agent’. CLRG means ‘Clearing’ and COVE means ‘Cover’. Let's understand with an example what this mean.

Settlement Methods in a Serial payment

Suppose Corporate A in Japan is sending USD payment to Corporate B in India through their banks A and B respectively. The correspondents of Bank A and B are Banks C and D respectively. Now when Bank A sends the pacs.008 to Bank C, Bank A is the instructing bank and Bank C is the instructed bank. Now, Bank C being the correspondent of Bank A, it is Bank C which maintains the USD nostro account of Bank A. So, the settlement account for this payment message is held with the instructed bank, Bank C. Hence the settlement method for this message is INDA, meaning the responsibility of settlement is with the instructed agent. So, whenever the settlement account is held by the instructed agent, the settlement method for that message will be INDA.

The next two pacs.008 messages move inside the same country, and thus both Bank C and Bank D hold their settlement accounts in the clearing house, and thus, for both these pacs.008 messages the settlement accounts are held with the clearing system, hence the settlement method used in these two messages is CLRG.

Now, when Bank D sends the last pacs.008 to Bank B, the instructing Bank D is telling the instructed Bank B that - 'we have settled your nostro account held with us, please pay the money to corporate B'. So here, the settlement account is held with the instructing agent of the message and hence the settlement method used will be INGA.

Settlement Methods in a Cover payment

Now, in the case of a cover payment, the same settlement methods get reflected in the pacs.009 COV messages that travel from Bank A to Bank B as the concept of who is responsible for the settlement is the same as we discussed earlier. 

The pacs.008 message from Bank A to Bank B that bears the news that a payment is coming, has the settlement method COVE meaning the actual settlement is getting done using the cover method.

This is in brief the concept of settlement method in SWIFT MX messages.

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