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Federal Reserve Bank

July 15, 1986


Circular 86-63


The Chief Operations Officer
of all depository institutions
in the Eleventh District

Request for public comment on proposals to provide third party
payment information over Fedwire in a standard format
The Federal Reserve Board has published for comment a proposal to
provide third party payment information over Fedwire in a standard format.
Comment is requested by August 11, 1986.
The current Fedwire format used by most depository institutions for
third-party payments is not machine readable. Thus, depository institutions
receiving the information must frequently review the payment information
manually in order to post the payments to customers' accounts.
Under the Board's proposal, third party information would be
identified by using standard three-character identifiers for each field of
information such as the identity of the depository institution's customer and
the purpose of the payment. Reserve Banks would impose a $0.25 surcharge to
institutions originating Fedwire messages in nonstandard formats, as of
January 1, 1988. In addition, the standard format would become mandatory for
Fedwire payments on January 1, 1989.
To assist depository institutions, Reserve Banks would provide them
with detailed specifications regarding the format standard. This proposal
would give institutions more than a year to modify their internal operating
systems before a surcharge is imposed for nonstandard messages and more than
two years before the standard formats are required.

For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (




A copy of the Federal Register document is attached.
For further information, please contact Jonnie K. Miller at (214)
651-6290 or Larry Ripley at (214) 651-6118.
Sincerely yours,

(Document No. R-0575)


Board of Governors of the Federal Reserve System.


Proposed rule; request for comment.


The Bo^rd of Governors of the Federal Reserve

System ("Board")

is requesting comments on a proposed

two-part program to require depository institutions sending
funds transfers over Fedwire to provide third-party payments
information in a structured message format.— ^


a two-phased program is proposed which would involve:

A higher price for messages not conforming to
the standard format beginning January 1, 1988,
as an incentive to encourage use of the
format; and


Mandatory use of the standard message format
beginning January 1, 1989.

— For complete information on funds transfer data elements
and formatting conventions, refer to Developing a More
Efficient Fund Transfer Service : Phase II:
Formatting Convention and Inter-Network Conversion Rules,
American Bankers Association, Revised edition, April 1985.
Parties interested in receiving detailed technical
information on edits planned for the standard format should
contact their local Federal Reserve Eank.





Comments on the proposal should be submitted no

later than August 11, 1986.

Interested parties are invited to submit written

data, views and other comments to William W. Wiles,
Secretary, Board of Governors of the Federal Reserve System,
20th Street and Constitution Avenue, NW, Washington, DC
20551, or to deliver such comments to the guard station in
the Eccles Building Courtyard on 20th Street, NW (between
Constitution Avenue and C Street, N W ) .
should refer to Docket No. R-0575.

Written comments

Comments received may be

inspected in Room B-1122 between 8:45 a.m. and 5:15 p.m..
except as provided in section 261.6(a) of the Board's Rules
Regarding Availability of Information.

(12 C.F.R.



Julius F. Oreska,

or Peggy Weimer, Senior Analyst,

Division of Federal Reserve Bank Operations
Elaine Boutilier, Attorney, Legal Division
or Telecommunications Device for the Deaf
Earnestine Hill or Dorothea Thompson

(202/452-2418) ;

("TDD") users,

(202/452-3544), Board

of Governors of the Federal Reserve System, Washington, DC





The current Fedwire format for

funds transfer messages consists of two parts.

The first

part contains precisely structured information that
identifies the sending and receiving depository institution
and the dollar amount of the transfer.

The second part of

the message contains information in an unstructured form
about the customers of the depository institutions involved
in the transfer and the purpose of the transfer.
The lack of structure in the second part of the message
requires depository institutions receiving the messages to
review the payment instructions manually in order to post
the payments to the customers' accounts.

This manual

processing can be error prone, time-consuming, and costly.
In addition, the inability of depository institutions to
process the incoming wires in an automated fashion has
caused some problems in monitoring customer account balances
under the Board's risk reduction program for large-dollar
The operating difficulties associated with the
unstructured payment instructions in Fedwire messages led
the American Bankers Association

(ABA) to undertake a study

of funds transfer formats in the early 1980's.

In 1982, the

ABA issued a report that recommended a format convention for
Fedwire third-party payments.

The convention requires that

the third-party information, that is, customer information,




be identified using standard three character identifiers for
each field of information.

Use of these identifiers or

field tags is intended to facilitate the automated handling
of Fedwire funds transfers.
The Federal Reserve has supported this convention since
it was introduced.


less than 11 percent of

third-party messages processed on Fedwire are in the
structured form.

The Board believes that this limited use

is primarily because of the lack of incentives on Fedwire to
encourage institutions to make the necessary changes to
their systems in order to begin processing payments using
the ABA convention.
The ABA convention has the potential of even greater
benefits to institutions as a result of the Board's policy
to reduce risks in large-dollar transfer systems which
requires depository institutions to manage their payments
system risks.

To do this, an institution must not only

manage its own position on each payments system and across
all payments systems, it must also manage its customer's

The Board's policy statement

May 22, 1985)

(50 Fed. Reg. 21120,

states that each institution should have the

capability of monitoring the effect of all significant
transactions on the funds positions of customers as the
transactions occur during the business day.

This capability

is difficult to attain without automation of posting a




transfer to a customer's account.

Consequently, receiving

institutions of funds transfers need a higher level of
service than is now available.

The proposed program would

improve the funds transfer service to facilitate monitoring

intra-day funds positions.

If the potential benefits of a structured Fedwire
message are to be realized, the Board believes that the
Federal Reserve should more actively support its use.


program has been developed to accomplish this objective.
In the first part of the program, which would begin on
January 1, 1988, a surcharge of 25 cents over the automated
transfer fee

(currently 55 cents) would be charged to the

sender of a message that contains unstructured third-party

— Senders of structured third-party messages

would be charged the regular on-line funds transfer fee. January 1989, the Board proposes to make
the structured third-party message mandatory.

By then, the

— This proposal is consistent with pricing principle number
7, adopted by the Board in 1981.
(46 Fed. R e g . 1338).
principle states in part: "The structure of fees and service
arrangements may be designed both to improve the efficient
utilization of Federal Reserve services and to reflect
desirable longer-run improvements in the nation's payments




depository institutions will have had over two years to
prepare for the change.

Mandated use would be enforced by

rejecting immediately back to the sender any third-party
transfer messages that do not conform to the required

If a transfer were rejected, the sending

institution would be able to complete the transfer by
originating a reformatted transfer or requesting the
transfer through the Federal Reserve's off-line operation.
The phased implementation of the structured third-party
message as the Fedwire standard should provide depository
institutions sufficient time to modify their software and
adjust their operations to the new requirement.

By the

third quarter of 1986, the Reserve Banks expect to provide
detailed software specifications to depository institutions
using computer-to-computer interfaces and to the software
vendors that support such institutions.

In addition, the

Reserve Banks would assist institutions using personal
computer to implement structured Fedwire transfers.
The Board is requesting comments from interested
parties on all aspects of this proposal.

The Board

specifically solicits comments on whether depository
institutions can make the necessary software modifications
by January 1988.




The Board is also interested in the public's views on
whether Fedwire should offer a special service to facilitate
the inclusion of customer account information in funds
transfer messages.

In concept, such a service may be

similar to the universal identification service offered on
the CHIPS network, i.e., insertion of the correct customer
account number when the sending institution did not have
this information.

The Board is interested in the public's

views on the benefits of such a service; how it might be
structured to satisfy their business needs, and whether such
a service is consistent with privacy considerations.
Finally, the Federal Reserve is studying electronic
payment formats to determine whether additional changes
should be made.

This study will include a review of all

industry standards and will focus on how the needs of users
of electronic payment services can best be met.


connection with this study, the Board is interested in
receiving comments from the public on any electronic payment
format changes they feel are necessary.
By order of the Board of Governors of the Federal
Reserve System, June 5, 1986.

(signed) William W. Wiles

William W. Wiles