T2S or Target2-Securities platform

T2S will provide a single technical platform for processing settlement instructions, in a harmonised manner, for 28 CSDs in Europe, in different currencies and at the same price for both domestic and cross-border operations.

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SGSS recently held a seminar on European financial services infrastructure at its Paris-based headquarters in La Défense. In the final full presentation of the day, the end of December 2022 was pinpointed as arguably the ultimate landmark date for T2S. That is the date by which it is forecast that financial breakeven will have been reached and all accumulated investment recouped, Vincent Bonnier, 4CB T2S Project Manager, Banque de France, reminded the audience.

The 4CB project

4CB T2S Project is shorthand for the project being led by four of Europe’s most senior central banks, those of France (Banque de France), Germany (Deutsche Bundesbank), Italy (Banca d’Italia) and Spain (Banco de España).

T2S will constitute a major step forward in the delivery of a single integrated securities market for financial services.

The Governing Council of the European Central Bank (ECB) took the decision to launch the T2S project on July 17 2008, building on the success of the earlier Target 2 project for the processing of large value euro payments. If all goes according to plan, T2S will constitute a major step forward in the delivery of a single integrated securities market for financial services.

T2S is a technical platform to support CSDs by providing core, borderless and neutral settlement services. Its well documented objective is to achieve harmonised and commoditised delivery-versus-payment settlement in euro-denominated central bank money (and possibly other currencies) in substantially all securities in Europe

Devil in the detail

According to parameters set out by the Governing Council, the T2S service will be developed internally within the Eurosystem. It will be operated on the TARGET2 platform in order to exploit synergies with TARGET2 to the fullest extent.

The project has at its technical heart the synergies that can be created by the reuse of the existing technical architecture designed for T2. This is built upon a fully scalable central processing system, a storage sub-system with synchronous and asynchronous mirroring, a dedicated network connecting the different processing sites and ‘single window’ access.

Plans for the reuse or the sharing of T2 resources currently include the mutualisation of some components, time-sharing of equipments and teams and the use of common tools. This overall concept is designed to ensure the timely delivery of a cost-efficient solution in the interest of Central Securities Depositories, Credit Institutions, CCPs and the Eurosystem, said Vincent Bonnier. It also removes technology risk from the equation, he notes. "Financial and market risk are quite enough risk for any single project," he added, drily.

Common synchronised efforts

The four central banks have been following a common and synchronised process focussing on technical specifications, development/unit tests, module tests (functional) and integration tests (application) and internal 4CB tests. The project has now reached the end of the specification stage and the architecture design is proceeding towards finalisation.

The success of T2S, however, will depend on two main factors: one, the willingness of CSDs to join the platform and two, the level of harmonisation reached beyond the pure settlement layer.
Eric de Nexon

Development will be followed by extensive and extended testing. User tests will have two objectives. Firstly, to verify that the T2S platform fulfils the requirements placed upon it. Secondly, to guarantee that CSDs and their community are ready to migrate to T2S. There will be a series of verification and certification processes based upon interoperability tests, community tests, business day tests, nonfunctional tests and free tests. A user book will be published in September 2012. User tests will begin at the start of 2014.

The complex process of full migration by CSDs will begin by September 2014. While its exact definition and duration are yet to be decided (by the CSDs involved), migration is currently expected to take place in three waves over a year. The first wave (covering less than 40% of volumes), with a significant coverage of functions, will be aimed at confirming the stability of the system. The second and third waves will be as balanced as possible in terms of volumes. There will in addition be a contingency window. Just in case.

The road to recovery

Full cost recovery through a charge of 15 eurocents per transaction will take place over the following seven years. The ECB Governing Council is aiming for a level playing field, and will not favour one community over another, Vincent Bonnier continued. Prices will be equal for all CSDs and there will be no discounts for larger volumes.

Economies of scale will see significant reductions in settlement fees. Settlement borders will be eradicated.
Vincent Bonnier

As CSDs, non-eurozone central banks will have their own steering group, through which they will enjoy some limited input into the project before and after the platform has become operational. Level 2 and Level 3 contractual relationships should be signed by CSDs and non euro National Central Banks by September 2011.

In the meantime, much important work remains to be done by the CSDs and by the ECB in its management of the crucial co-ordination process that lies ahead over the next decade and more. The benefits will be worth the prolonged effort, concluded Vincent Bonnier

"The move will provide support for competition between service providers in the securities industry and will create a single pool of assets, delivering considerable back office savings in operations, liquidity and collateral management. It will promote harmonisation, and contribute to a competitive and effective European market."

Next Finance , SGSS , March 2011

Article also available in : English EN | français FR

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