Almost a decade in the making, TARGET2-Securities (T2S) is scheduled to become a reality next month, but the full impact of the European Central Bank’s (ECB) single securities settlement platform will only be revealed incrementally over several years.</p> From 22 June, 24 central securities depositories (CSDs) from 21 European markets are scheduled to join T2S in a succession of four waves until February 2017, starting with Bank of Greece’s securities settlement system, Depozitarul Central of Romania, Italy’s Monte Titoli, the Malta Stock Exchange and SIX SIS of Switzerland. The five CSDs and their central banks have already conducted multilateral interoperability testing to ensure their settlement and related systems interact effectively with the T2S platform, each other and their respective clients.</p> The first migration rehearsal started on 16 May and user testing will end on 12 June. T2S board member Paul Bodart raised some eyebrows earlier this month when he told a conference held by the Association for Financial Markets in Europe that technical issues could delay the planned launch.</p> Stemming from the TARGET2 system for settling large-value euro-denominated payments in central bank money, T2S was conceived as a platform on which securities and cash accounts could be integrated to effect real-time delivery-versus-payment settlement across Europe’s national boundaries.</p> This means T2S will simplify and reduce the cost of cross-border securities settlement, offering potential savings to investors and issuers, but its impact is more far-reaching. According to T2S board chairman Marc Bayle, the initiative has already had a catalytic impact on broader efforts to harmonise processes and practices across Europe’s previously disparate post-trade securities landscape. “Thanks to the harmonisation activities and the T2S platform itself, the complexity of cross-border settlement will be reduced and efficiency thus increased,” he said.</p> The migration to a more standardised, pan-European model for post-trade securities services may bring benefits to end users, but there are expected to be casualties among service providers, including national CSDs, agent banks and sub-custodians, if they cannot adjust. Philip Van Hassel, T2S programme director at Euroclear, says that while the platform has the potential to transform the efficiency of Europe’s securities markets, many key strategic decisions by service providers will be on hold until T2S gains critical mass.</p> “There is still some uncertainty about how the market will shape up. As such, many firms will continue to use their current providers for the time being. We are not yet in the era of pan-European asset servicing. Over time, greater harmonisation of post-trade processes in Europe is likely to reduce the value of the local agent bank and increase the opportunities for service providers to develop new propositions,” he said. “It is possible that the chain of post-trade intermediaries will reduce in due course. It seems likely that the market will divide between service providers that can invest sufficiently to deliver broad pan-European coverage and those which choose to pursue niche plays, such as tax servicing.”</p> According to Van Hassel, the benefits of T2S to issuers, investors and intermediaries include, but are not limited to, the greater asset protection and improved collateral management demanded by the post-crisis regulatory framework. “The Alternative Investment Fund Managers Directive and UCITS V impose greater responsibility for the loss of client assets, while collateral optimisation has become much more of a priority due to the European Market Infrastructure Regulation and Basel III. T2S is not sufficient but it will help firms to address these challenges. Similarly, banks will be able to simplify and consolidate their funding needs into a single account. Over time, the reduction in costs from these efficiencies benefits actors in the ‘real’ economy, not just securities market participants,” he said.</p>