Industry Prepares for T2S First Phase

Terry Flanagan

Keler, the Hungarian central securities depository, has signed a contact to connect to the third phase of Target2-Securities (T2S) as the first phase goes live in June.

T2S, backed by the European Central Bank, is a technology platform which aims to harmonise securities settlement across the Eurozone by making settling cross border trades across as easy as domestic trades. Under T2S a single set of rules, standards and fees will apply across all securities transactions in the Eurozone. Central securities depositories will begin to join in June this year and continue to connect in two successive waves in the summer of next year and 2016.

Keler will join in the final phase and be among the first CSDs in Central and Eastern Europe to directly access the platform.

This week Keler said it had awarded the contract to connect to T2S to SIA, the technology infrastructure firm, in partnership with Colt, the information delivery platform.

Hugh Cumberland, Capital Markets solution manager, at Colt, said: “2015 is going to be an exciting year for the T2S programme. We are proud that a large proportion of the volume of traffic in wave 1 will be carried by SIA-Colt, but this is only the very beginning of the pan-European migration process to the single platform.”

SIA and Colt have also provided connectivity for firms joining this June including Borsa Italiana’s Monte Titoli, the largest central securities directory in the first phase.

Cumberland told Markets Media there has been a tremendous attention to detail throughout the migration to T2S.

“We had a weekend of testing last November and there will be another five tests before the first phase,” he added. “The volume of messages was astronomical but there were no major issues during the weekend.”

The ECB has forecast that T2S will be able to handle a daily average of more than 1 million securities transactions and lead to a significant reduction in cross-border settlement costs.

Cumberland expects to see consolidation amongst the CDSs in Europe after T2S. “Every country has its own CSD, and some have two, and they will have to find new things to do,” Cumberland said. “T2S will lead to more focus on collateral management and more efficient settlements will lower the cost of investment in Europe.”

Emily Cates, a specialist at global capital markets consultancy GFT Group, agreed that the international CSDs will benefit from T2S as they are already used to administering positions in multiple countries and currencies. “The local CSDs will have to see whether they can hold onto a specialised role but there is a long way to go before they disappear completely,” she said.

She said that the ability to pool assets and manager liquidity will become more apparent after the final phase of T2S is implemented in 2016. Cates said: “Firms will then question whether they should remain indirectly connected or ether they can bring services in-house to optimise their use of collateral.”

Last year the European Repo Council of the International Capital Market Association commissioned consultancy Rule Financial to carry out a market survey of preparations for T2S. The study found that more than 80% expect T2S to have a significant impact and 77% expect T2S to result in a greater pool of collateral and increased liquidity across the industry.

Cates said T2S is currently focussed on the cash equities and fixed income markets but could impact derivatives linked to settlements that involve delivering shares or bonds, or baskets of securities. “Central clearing counterparties will be very influential in how T2S develops,” she added.

Related articles

  1. The head of global trading at Third Avenue Management won at the 2023 Markets Choice Awards.

  2. The asset manager would like to expand in alternatives.

  3. Sokol, Global Head of Equity Trading at Lazard Asset Management, won at the 2023 Markets Choice Awards.

  4. The asset manager also announced a partnership with Power Corp. of Canada and Great-West Lifeco.

  5. Joint solution will better enable a global, connected view of investment portfolios.