ECB settles T2S agreement for CSD’s to sign

ECB points out that the T2S framework agreement for CSDs to sign, have been settled. T2S is an initiative for harmonisation of the post trade area. Lack of harmonisation in the post-trade industry is today a big issue for Europe. It results in increased costs and risks particularly in a cross-border environment. The so-called Target2-Securities (T2S) project is an ECB initiative, envisages the creation of a single platform for cross-border and domestic securities settlement against central bank money. The platform will service the national central securities depositories (CSDs) and will be run by the Eurosystem. Securities covered will solely be those traded in Euros, but T2S will have the technical ability for the 27 European countries to incorporate other currencies in due course.

T2S stakeholders expect that the creation of a single settlement engine in Europe will act as major catalyst for the ongoing initiatives for the removal of barriers to cross-border settlement harmonisation. The initiative was launched in 2008 as an alternative to slow-moving private sector efforts to streamline Europe’s settlement systems.

T2S is part of a wider European project to harmonise cross-border processes and reduce capital market transaction costs to make the region more competitive with the US. The platform is after several delays, latest announcement last month, planned to start the acceptance test in September 2014 followed by user testing before the first country going live in the summer of 2015.

On the 24th of November, ECB pointed out that the T2S Framework Agreement for CSDs to sign, had been settled. Contracting CSDs have until December 19th, 2011 to make a request to migrate in wave one, thereby making the most of the incentives on offer. ECB governing council gives CSDs until the end of April 2012 to sign the agreement to join T2S.

The CSDs’ participation in T2S is not ment to be mandatory. CSDs’ participation in T2S is a business decision on the part of the CSDs and their local market community. When deciding whether or not to join T2S, CSDs are expected to follow the interests of their shareholders and customers.

ECB needs the larger non-euro markets– Sweden, Switzerland and especially the United Kingdom – to join the T2S project by agreeing that Swedish Krona, Swiss Franc and Pound Sterling transactions can be settled in central bank money via T2S. This is an important condition for ECB to be able to fulfill the stimated tariff for settlement transactions to 15 Eurocent. If the Swedish market decides not to join T2S from start it would give some needed time for the community to prepare for the changes. The cost for joining and adapting to the new platform is still very unclear. And the fact that Sweden do have an end client account structure to consider in the solution makes the decision a lot more complex when looking at how to communicate with T2S.