T2S: Difference between revisions
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'''T2S (TARGET2-Securities)''' is a large, non-profit project of the [[Eurosystem]] launched in 2006 aiming to provide harmonised [[Settlement (finance)|settlement]] in a variety of currencies for almost all heavily traded securities circulating in Europe. The settlement platform will be operated by the Eurosystem with the objective of reducing the costs of cross-border securities settlement within the [[Euro area]] and participating non-Euro countries. |
'''T2S (TARGET2-Securities)''' is a large, non-profit project of the [[Eurosystem]] launched in 2006 aiming to provide harmonised [[Settlement (finance)|settlement]] in a variety of currencies for almost all heavily traded securities circulating in Europe. The settlement platform will be operated by the Eurosystem with the objective of reducing the costs of cross-border securities settlement within the [[Euro area]] and participating non-Euro countries. |
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[[File:T2S logo.jpg|thumb|right|Logo of the T2S Project]] |
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=== '''T2S Settlement Platform''' === |
=== '''T2S Settlement Platform''' === |
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Revision as of 08:54, 23 December 2009
T2S (TARGET2-Securities) is a large, non-profit project of the Eurosystem launched in 2006 aiming to provide harmonised settlement in a variety of currencies for almost all heavily traded securities circulating in Europe. The settlement platform will be operated by the Eurosystem with the objective of reducing the costs of cross-border securities settlement within the Euro area and participating non-Euro countries.
T2S Settlement Platform
Within the T2S platform the transactions will be settled in central bank money and linked to TARGET2 (real time gross settlement system operated by the Eurosystem) or other, non-euro RTGS. For the securities leg, T2S will settle via the securities accounts of connected central securities depositories (CSDs). Both legs of the transaction will be performed in Delivery versus payment (DvP) mode, i.e. the security will only be delivered to the buyer if, and only if, the cash is delivered to the seller. Thus the risk that one party to the transaction will not deliver is, in theory, excluded. In principle, T2S should become a single IT platform for settling almost all traded securities in Europe, eliminating any differences between the settlement of domestic and cross-border transactions. It is also assumed that, T2S will lead to the horizontal integration, across Europe, of the most fundamental part of the securities infrastructure value chain: settlement.
The T2S project was officially launched by the Governing Council of the European Central Bank (ECB) on 17th July 2008. The development and operation of T2S, coordinated by the ECB was assigned to the four members of the Eurosystem – the central banks of France, Germany, Italy and Spain. The will to build the unique European settlement platform was confirmed by a Memorandum of Understanding signed on 16th July 2009 between the Eurosystem 27 European central securities depositories (CSDs), which provided the basis for the formal contractual agreement between project participants. According to the project timetable, the T2S platform should be operational in 2013.
Core Functionalities
The most important functionalities of T2S will include:
Real-time gross settlement in central bank money: T2S will provide real-time Delivery versus payment (DVP) securities settlement in central bank money. According to this concept, the transfer instructions for both securities and cash are settled on a trade-by-trade basis, with final transfer of the securities from the seller to the buyer (delivery) occurring at the same time as final transfer of the cash from the buyer to the seller (payment). Additionally, in order to further decrease settlement risk, the cash leg of the trade is settled in the books of the central bank.
Optimisation of settlement: T2S will use sophisticated optimisation algorithms to achieve exceptionally high levels of settlement efficiency. The settlement could be optimised among others through detection of simultaneous transactions’ chains, using technical netting or allowing partial settlement.
Auto-collateralisation: T2S will provide efficient auto-collateralisation functionality, extending a service which was previously only available in a few European countries to all users of T2S. Auto-collateralisation enables a transaction to be settled by automatically triggering the provision of intraday credit from the central bank, which gets as collateral either the securities that are being purchased (collateral-on-flow) or by other eligible securities available in the market participant’s securities account (collateral-on-stock), with prioritisation given to the use of the former.
Optimisation of liquidity: Optimisation of liquidity within T2S will be possible due to services based on a link between a market participant’s T2S dedicated cash accounts and its main RTGS cash accounts (outside T2S at the central bank).
Technical direct connectivity: Market participants will get the possibility, conditioned upon the consent of their CSD (the contractual relationship remains between the market participant and its CSD) to “connect directly” to T2S, routing their settlement instructions directly to the T2S platform rather than via a CSD.
T2S Governance
The governance structure of the T2S project is characterised by the strong involvement of the market and all interested parties. The main T2S stakeholders are central securities depositories (CSDs), commercial banks active on the securities market and European national central banks, The Eurosystem - the owner, developer and future operator of T2S – is at the core of the T2S governance and ensures that all T2S developments are fully transparent and in line with the needs of the market. The ECB Governing Council, the main decision-making body of the Eurosystem, is also the ultimate decision-maker on T2S. The Governing Council assigned the daily management of the T2S project to the T2S Programme Board, which has to implement T2S in time, within the budget and according to market needs. The project stakeholders contribute to the T2S project mainly via two bodies, the Advisory Group (AG) and the CSD Contact Group (CCG), and their sub-structures. They assist in the preparation of both technical/functional specifications and the legal framework of the T2S platform.
Reasons for T2S
In its principles, T2S should allow to overcome still existing fragmentation on the post-trading market in Europe. The most important, and most direct, benefit of T2S will be a significant reduction in cross-border settlement fees. T2S aims to achieve this result by processing cross -border and domestic transactions in the same way, and therefore at the same cost. Consequently, T2S settlement should replace today’s very complex methods involving processing in at least two central securities depositories (CSDs) and, most of the time, also in one or several custodian banks.
As a European project, T2S is also a step towards a single market for financial services, creating a “domestic” market for the settlement of European securities, directly and indirectly removing many of the “Giovannini barriers” to cross-border clearing and settlement.