T2S Needs to Increase Cross-Border Activity
Clearstream, Deutsche Börse’s international central securities depository, said volumes remain divided on national lines on TARGET2-Securities, the platform which aims to harmonize cross-border securities settlements in the Eurozone.
T2S allows settlement in central bank money across borders, central securities depositories and currencies so there is no difference between domestic and cross-border transactions. In T2S participants can use one cash and securities account for all T2S markets, which now have the same cut off times, allowing liquidity and collateral to be pooled
Marc Robert-Nicoud, chief executive of Clearstream Holding said in a statement: “The harmonization objective requires both infrastructure development and a change in market behavior. T2S migration has not yet translated in market participants changing their model to take full advantage of the T2S benefits.”
The settlement platform began operating in 2015 after being launched by the European Central Bank in 2008 to end fragmentation in securities settlement across the Eurozone as the cost of cross-border transactions could be 10 times more expensive than domestic transactions. Clearstream was among the six migrating CSDs who joined T2S in February this year. As a result 18 CSDs, representing 16 markets have migrated to T2S, representing more than 80% of the total volume on the platform ahead of the fifth and last migration wave in September.
Since Clearstream joined T2S, volumes on the European Central Bank platform have doubled to 500,000 transactions per day. Clearstream added: “Cross-border activity in central bank money through T2S remains a small fraction of these volumes.”
Robert-Nicoud continued that Clearstream is continuing to develop T2S to ensure the platform delivers on its pan-European ambitions but legal barriers still make it complex to hold securities a cross borders. He said: “We see these efforts as critical to ensure that the market gets the benefits of the investments made over the last years.”
Following its migration, Clearstream launched an enhanced integrated service offering, allowing customers to connect and access all of its three CSD entities (Clearstream Banking Frankfurt, Clearstream Banking Luxembourg and LuxCSD ) through one platform.
After the migration of Clearstream, LCH, the London Stock Exchange Group’s clearing house, said in a statement in March it had extended its RepoClear service to offer clearing for cash and repo trades on German government securities. LCH SA, its continental Europe-based entity, which already clears trades on Italian, French and Spanish government securities.
The new offering covers trades on German government and regional debt allowing members clearing these products to net their positions with other European transactions cleared at LCH SA and settled through T2S, reducing the use of balance sheet and capital and margin requirements.
Michael Manna, head of EMEA and APAC fixed income financing at Barclays, said in a statement: “There is clear evidence that the roll out of T2S will bring tangible benefits towards improving the infrastructure services required to support liquidity in the European sovereign bond markets.
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