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Does TARGET2- Securities live up to its expectations?

Since 22nd June 2015 TARGET2-Securities, the new unified platform for processing settlement instructions, has been a fact.

We asked Frederic Hannequart, Chief Business Development Officer, Euroclear for the opinion of Euroclear on TARGET2-Securities. "T2S will undoubtedly make Europe’s capital markets more efficient for domestic and international investors."

22 Mar 2016

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With T2S the European Central Bank strives to make the European capital markets more efficient and cheaper and thus more competitive. The first experiences with the platform and the impact on the settlement process show that the member CSDs still apply different instruction standards. As a result the intended harmonisation results are not met yet. How does Euroclear see the initiatives of the ECB and the CSDs to achieve greater standardisation? How will T2S change the market?

"Europe’s capital markets are likely to become even more attractive, post-T2S implementation. T2S will reduce European fragmentation, creating a single integrated settlement model. It will also make securities settlement safer and more efficient resulting in Europe attracting more issuers and investors. For investors, Europe will become easier to access and invest in and at the same time, issuers will benefit from having a broader pool of investors. T2S will undoubtedly make Europe’s capital markets more efficient for domestic and international investors. We already see that some of our clients are focused on managing liability in light of evolving regulations that encourage firms to have accounts in a securities settlement system, such as a CSD or ICSD, bringing them closer to the settlement infrastructure."

From the start of the T2S project in 2006, many ambitious estimates have been made of the possible decrease in settlement fees and other tariffs. To date, KAS BANK does not see a clear tariff reduction. When do you expect that the market will see this effect?

"There will be cost savings when T2S is implemented, resulting from the inherent efficiencies and scale savings. Following T2S implementation, a client that centralises activity in a scale provider will create cash pooling and netting opportunities across all T2S countries, resulting in reduced credit consumption for settlement.
In the long run, the total settlement costs may be expected to partially reduce, as it will ease cross border settlement and enable further competition between the European CSDs. This may lead some CSDs to revise their settlement tariff. As the running costs for the CSDs connected to T2S will not change substantially and T2S adds an extra cost layer, fee reductions may be implemented gradually once there is a clearer picture of impacts on volumes and harmonisation. On the custody/safekeeping side, T2S does not have a material impact on CSDs costs; any changes to safekeeping fees are therefore likely to be for other reasons.
ESES will now migrate in September 2016 under the revised migration plan. This will provide us with the necessary time to safely conduct our T2S adaptation programme and to support our ESES markets in this transition. We continue to invest and provide the necessary expertise to complete this project with a minimum of delay. As Europe’s leading post-trade infrastructure, we remain committed to the safety, stability and resiliency of the marketplace."

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Henk Brink

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Henk Brink

Senior Market Intelligence Specialist
+31 (0)20 557 5327