Europe’s Settlement Initiative Gains Traction

Terry Flanagan

The European Central Bank’s Target2-Securities (T2S) scheme, which is intended to streamline settlement across the region, received a further boost as the Swiss central securities depository (CSD) signed up to the much-delayed initiative.

SIX Securities Services, the Swiss depository, will also become the first non-eurozone CSD to join the scheme as the initiative begins to gain more traction.

SIX says that because of the decision by the Swiss National Bank to not allow the Swiss franc to be made available as a settlement currency, it took the decision to enable the Swiss financial center access to Europe’s envisaged centralized settlement platform, T2S, and, in turn, the eurozone markets.

“This decision is the result of almost three years of discussions and consultations with our clients, with regulators from across Europe and with other key stakeholders,” said Thomas Zeeb, chief executive of SIX Securities Services.

“We have carefully crafted service concepts and propositions that we believe will benefit both our Swiss and our European clients. These include improved efficiencies, enhanced collateral management and a range of other new services.”

Currently, T2S markets represent over 50% of all cross-border transactions processed by SIX Securities Services—15% of its total transaction volumes. SIX says that having direct access to T2S will benefit clients with lower settlement volumes, for whom the costs of accessing T2S markets represent a significant investment.

SIX Securities Services, through a combination of direct access to foreign market infrastructure providers and a range of partners, offers services in over 65 countries making it one of the most international of Europe’s CSDs.

Just last week four more CSDs added their names to the IT scheme, as the June 30 deadline for the project rapidly approaches. Euroclear, the second largest eurozone CSD, saw its Belgium, France and Netherlands platforms sign up although Euroclear Sweden and Euroclear UK & Ireland have both opted out of T2S while its other European operation, Euroclear Finland, remains undecided. The Central Securities Depository of the Slovak Republic also joined last week.

Belgian-based Euroclear, which handles around 30% of all settlement volumes in the eurozone area, has united with the other large eurozone CSD, Germany’s Clearstream, which accounts for 40% of all volumes in the area, in backing the project.

The European Central Bank says T2S will provide a single harmonized platform on which almost all heavily traded securities circulating in Europe can be settled and will cut cross-border settlement by 90% and make it more competitive with the US, which only has one settlement provider. It is claimed that T2S will also lower domestic settlement costs through economies of scale by using a single platform and will cut out the role of ‘agent’ banks that currently undertake the complex cross-border settlement procedure.

“T2S is a clear example of the very good co-operation amongst stakeholders in the post-trade industry,” said Peter Praet, the European Central Bank’s executive board member responsible for T2S, last month. “We shall work together with the CSDs to implement T2S—for the benefit of the European financial markets.”

However, 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. Some national CSDs fear they will be forced to seek alternative business opportunities.

The European Central Bank expects all euro-area CSDs and several from outside the euro area to sign up to the framework agreement by the end of this month.

In a bid to entice depositories, the European Central Bank offered significant price cuts to those that signed up by the end of April. But 22 of the 31 original CSDs that were asked to sign up to the project hadn’t committed by that date. The nine to sign up before April were Bank of Greece Securities Settlement System; Clearstream; Depozitarul Central of Romania; Iberclear, which is run by Spain’s Bolsas y Mercados Españoles; LuxCSD of Luxembourg; Monte Titoli of Italy, which is owned by the London Stock Exchange; National Bank of Belgium-Securities Settlement System; VP LUX of Luxembourg; and Denmark’s VP Securities. T2S is expected to go live in 2015.

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