T2S is a new European securities settlement engine which aims to offer
centralised delivery-versus-payment settlement in central bank funds across
all European securities markets. It is important to take note of the fact that
T2S is not a central securities depository(CSD), but a platform which
will enable CSDs to increase their competitiveness.
After market consultations and a decision by the Governing Council of the
European Central Bank, the project was launched in 2008 and the platform is
scheduled to start operations in 2015. The T2S Framework Agreement, negotiated
between CSDs and the Eurosystem, has been signed by 24 CSDs which will
migrate to the T2S platform in four waves between June 2015 and February
2017. The fundamental objective of the T2S
project is to integrate and harmonise the highly fragmented securities
settlement infrastructure in Europe. It aims to reduce the costs of cross-border
securities settlement and to increase competition and choice amongst providers
of post-trading services in Europe. It will therefore be a critical step
forward in the creation of the single market for financial services in the
European Union. The development and operation of T2S was
assigned to four central banks of the Eurosystem – those of France, Germany,
Italy and Spain. The project is being coordinated by the ECB. The IT platform
will be owned and operated by the Eurosystem. Technical details of the
project are available at the ECB T2S project website.
Objective and benefits One of the objectives of T2S is to
reduce the cost of securities settlement in Europe, in particular for
transactions across EU countries, which can be ten times more expensive than
domestic transactions. In addition, banks will be able to optimise their
collateral and liquidity management. The T2S settlement platform is also a step
towards a single market for financial services. The T2S project will be a
catalyst for further harmonisation of post-trade practices and regulations
across Europe. Significant progress has already been made by the T2S governance
bodies, composed of industry experts, on harmonisation of instructions management
and settlement processes, as well as on the processing of corporate actions on
unsettled transactions. As a result of reduced settlement costs, increased
competition and greater harmonisation, T2S is expected to have a positive
impact on European economic growth. The lower costs of settlement, and
potentially the costs for other post-trade services, are expected to be
passed on to investors. Furthermore, by making it easier and less costly to
access securities in other EU countries, investors could benefit from more
diversified bond and equity portfolios. In addition, issuers will gain access to
a more diversified investor base. The T2S platform may also have a
positive impact on financial stability. In particular, it will reduce the risks
that still affect the settlement of cross-border transactions. With its
robust business continuity solution, it will also decrease counterparty and
settlement agent risk. Additionally, by fostering greater efficiency and
integration of European financial markets, T2S may lead to greater
diversification and sharing of risks, adding to the stability of the whole
system. Due to the lean T2S concept and the resulting facilitation of post-trade
activities, banks will be able to streamline their back offices and thus
produce cost savings. As T2S will separate the settlement infrastructure
from the services offered by CSDs, competition in the provision of these
services will increase and benefit the customers Europe-wide.
Origin Historically, financial market
infrastructures in Europe were created to meet the requirements of national
financial markets. In most cases, there were one or two dominant players at each
stage of the value chain: typically one stock exchange for trading, one central
counterparty for clearing and at least one CSD for settlement. Furthermore,
these national infrastructures were primarily designed to manage securities
denominated in the national currency. Securities settlement across Europe thus
remained costly and cumbersome. Despite the introduction of the euro
more than ten years ago, the provision of post-trading services remained
heavily fragmented along national lines. For example, there were still 19 CSDs
operating in the euro area in 2009 and almost 40 in the 27 countries of the EU.
This situation is clearly not optimal for a single currency area or for the
EU, as it encourages each country’s financial market to remain
domestically-oriented. Investors continue to invest mostly in domestic
securities, and as a result, the euro area financial market cannot fully
benefit from the risk diversification and competition benefits that arise from
having a single currency. These barriers which provoke a considerable competitive
disadvantage for European capital markets were identified in a report by
the Giovannini group. EU authorities have taken up initiatives
to remove impediments to competition between national markets. The most
important initiatives from the European Commission are the Markets in Financial
Instruments Directive, the European Market Infrastructure Regulation and the
Central securities depositories Regulation(CSDR). T2S as a pan-European
platform is intended to complement these existing initiatives by boosting
competition, increasing price transparency and harmonising practices
across Europe. See also
TARGET2 European Central Bank
Financial integration Settlement
Clearing Security
Issuer References
External links T2S page on the ECB website
T2S Framework agreement. European Central Bank. 2011. Retrieved 24 June
2014. Sources
New European rules to regulate settlement and Central Securities
Depositories History of the T2S project
Fourth T2S Harmonisation Progress Report. European Central Bank. 19 March
2014. Retrieved 2 June 2014. Financial Integration in Europe.
European Central Bank. April 2014. Retrieved 2 June 2014.
T2S benefits: much more than fee reductions. Ben Weller, European Central
Bank. June 2012. Retrieved 17 June 2014. Second Report on EU Clearing and
Settlement Arrangements. The Giovannini Group. Brussels, April 2003. Retrieved 3
June 2014. Payments, securities and derivatives,
and the role of the Eurosystem. European Central Bank. 2010. Retrieved 3 June
2014.