Citi Taps Swift for T2S Connectivity

Terry Flanagan

Citigroup is ramping up its efforts to support the nascent pan-European securities settlement system, known as Target2-Securities (T2S).

The bank has tapped Swift to provide connectivity to T2S via financial messaging network Swift.

Citi is looking to Swift’s Value-Added Network (VAN) solution to provide highly reliable and robust connectivity to T2S.

“Citi is a valued customer of Swift and we have a history of collaboration,” said Russell Jones, head of securities Initiatives, EMEA, at Citi.

The choice of Swift enables Citi to leverage the bank’s existing infrastructure for T2S, both from an IT and operational perspective, as well as in terms of the staff, expertise and processes required to manage interactions with a business-critical infrastructure such as T2S.

“For access to T2S through the Swift VAN service, we are working once more in close collaboration with the Citi T2S project team to meet the T2S program milestones as laid out by the Eurosystem [the monetary authority of the eurozone which comprises the European Central Bank and the national central banks of the eurozone],” Jones said.

In a statement, Alain Raes, chief executive, EMEA, at Swift, said: “In the certainty that its T2S infrastructure can be relied upon, Citi can now focus on building the best model for customer delivery in a T2S world, and we look forward to providing other T2S participants with that same peace of mind.”

The objective of T2S is to facilitate post-trading integration by offering core, neutral, harmonized and commoditized delivery-versus-payment settlement in central bank money in substantially all securities in Europe.

“The area in which T2S will immediately provide an impact is around the harmonization of transaction settlement across the markets it will serve,” said Jones at Citi. “Harmonization will be facilitated by aligning settlement cycles; this will mean change in the processing applications of institutions involved in the transaction chain.”

T2S will “bring a different way of processing settlement of transactions, and
also communicating information around transactions with T2S will be different too through ISO 20022 [the universal financial industry message scheme] specific content”, said Jones. “T2S will mean investment is needed in the processing applications, integration platforms and communication interfaces by the securities industry.”

The implementation of T2S, a pan-European settlement system led by the European Central Bank, has forced the debate over harmonization of settlement cycles in Europe. Germany currently settles on T+2 whereas the rest of Europe settles T+3. The consensus is that Europe will move to T+2 once T2S goes live some time in 2015.

Twenty-four CSDs have signed up to T2S, including almost all in the eurozone as well as six outside the euro. The U.K., Switzerland and Sweden will not bring their own currencies into the project. T2S, which was originally launched in 2006, has encountered long delays and disputes among likely users as well as large costs with some predicting that the final investment for the scheme could top €1 billion.

Major T2S stakeholders have insisted that they won’t be able to reap the full benefits of T2S if post-trade processes related to T2S aren’t harmonized. Hence, post-trade harmonization needs to be a core deliverable of the T2S project.

In order to strengthen its catalyst role in this regard, the ECB has set up a high-level Harmonization Steering Group to define the top priorities and functional targets for harmonization activities going forward, and how best to deliver concrete results before the launch of T2S.

“Post-trade processing has long been the Cinderella of the capital markets technology arena,” said Marcus Kwan, vice-president of product strategy and design at CQG, a provider of trade routing, global market data and advanced technical analysis.

“Although regulation will further throw a spotlight on the inefficiencies in the back office, it might not mean it gets a shiny new makeover and goes to the ball in the near future.”

Currently, European securities markets do not follow a common settlement period. For equities, some regulated markets use T+2 while others use T+3.

T2S will centralize settlement in central bank money, primarily in euros. This differs from the current situation where CSDs settle the cash component of their clients’ trades with their local central bank. When T2S is launched, CSDs are expected to outsource the settlement of both the securities and cash components to T2S.

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