“T2S for beginners” – delivering innovation and efficiency for post-trade services in Europe
The European Central Bank today launches the new cross-border TARGET2 Securities platform, better known as T2S. Hugh Cumberland, Solution Manager at Colt, explains the significance of T2S and how Colt is playing a crucial role in its roll-out across Europe.
What is T2S?
Today, the new T2S platform makes its debut in the eurozone. Developed over seven years by the ECB and the Eurosystem in partnership, T2S is a pan-European securities settlement platform whose purpose is to centralise and unify the delivery-versus-payment (DvP) settlement of cross-border securities trading with central banks and central securities depositories across the eurozone.
Who’s going to use T2S?
The Governing Council of the European Central Bank (ECB) began the T2S project in 2008, and the central banks of France, Germany, Italy and Spain brought it to life. Testing of the platform is now at an end, and over the next 18 months or so, the Central Securities Depositories (CSDs) of 24 countries across the EU will shift their securities settlement to the T2S platform in four waves.
The first group of participants to make the migration will be Greece, Malta, Romania and Switzerland – the fifth member of the group, Italy, has delayed its entry due to technical problems, but expects to join at the end of August.
The other 19 eurozone participants scheduled to join T2S include France, the Netherlands (both March 2016), Germany (September 2016) and Spain (February 2017).
Why is T2S important?
T2S is the answer to the fragmentation of post-trade services across the eurozone, which is the reason behind the high costs plus inefficient and overly complex cross-border settlements of trades.
The cost of settlement in the EU is especially high compared to the US. Arguably, this discourages investment and makes raising capital in eurozone markets more difficult. T2S aims to change this by improving the eurozone’s competitiveness and its appeal to investors versus the US.
Why is T2S good for markets?
As a shared standard, T2S levels the playing field for settlement companies. T2S’s economies of scale and its cross-border openness not only lower the cost of settling transactions but also encourage greater competition between CSDs.
With T2S, CSDs can no longer potentially monopolise the market for settlement in their own country: instead, they’ll have to compete both with new entrants and also other CSDs from other eurozone countries. As such, they’ll need to look for new opportunities to expand their business, deliver extra value to customers, and compete in other markets as well.
And the overall result from T2S? Improved efficiency and more innovation across the European Capital Markets sector.
CSDs, National and Central Banks across the Eurozone, including Deutsch Bundesbank, Banca d’Italia and Italy’s CSD Monte Titoli, have all chosen Colt and our JV partner SIA to provide the all-important link and services that will connect them to T2S.
It’s looking good for T2S so far. Italy’s delay in joining the platform due to technical issues has not stopped other participating countries carrying out dress rehearsals for connecting to the platform, with very encouraging results. All players in the trading and settlement process – from trading firms, to CSDs, and National Central Banks – stand to benefit from the lower costs, faster settlement times and improved efficiencies that the arrival of T2S will bring.