OPINION: Regulators Deserve Applause for T2S04.16.2015
It is easy to criticise regulators for their lack of international co-ordination and adding costs to the financial services industry. So it seems only fair to give them credit for Europe’s Target2-Securities project, which will transform securities settlement in the region.
T2S, backed by the European Central Bank, is a technology platform which aims to harmonise securities settlement across Europe by making settling trades across borders as easy and cheap as settling domestic trades. Under T2S a single set of rules, standards and fees will apply across all securities transactions in the region.
Regulators have had to co-ordinate 24 central securities depositories moving to a new settlement platform over a multi-year period. The first phase of T2S goes live in June this year when five CSDs will join the new European settlement platform. A further 19 CSDs will have joined by the end of the third phase in February 2017.
Once T2S goes live market participants will be able to settle transactions across Europe through one central securities depository, rather than needing to have relationships with a number of national CSDs for separate settlements in each country.
Over the last few years market infrastructures, national central banks and financial intermediaries have been working to create a single rulebook for post-trade processes (messaging protocols, operating hours, regulatory and legal rules, etc.) across the 21 European markets and 24 CSDs that will connect to T2S. The T2S Advisory Group said in its fifth harmonisation progress report this week that common standards have already been defined in 17 harmonisation areas and the objective is to have the standards implemented by all markets by the time they migrate to T2S.
The first five markets to join – Italy, Romania, Malta, Switzerland and Greece – must comply by 22 June this year and the report shows that full compliance is expected by that date. In addition no major obstacles to achieving full compliance for all the other markets by the required deadlines are anticipated. The report said the only area where full compliance requires corrective action from some T2S markets is for corporate action standards.
The advisory group said the progress reflects the efforts of the T2S National User Groups who have prepared detailed implementation plans, including public dates for testing and migration readiness, and national authorities who have already adopted the necessary regulation or have confirmed that they will soon do so.
The report: “The creation of T2S constitutes the Eurosystem’s most fundamental contribution to market infrastructure integration, and it is widely recognised that the technical and operational harmonisation fostered by T2S, coupled with the legal and regulatory harmonisation agenda currently pursued by EU legislators, is a crucial ingredient for the creation of a single market for settlement services in Europe. This concept is also in line with the EU Commission’s objective to create a capital markets union.”
Indeed, it is hard to see how a capital markets union could happen without T2S.
In 2009 Paul Volcker, the former chairman of the Federal Reserve, said that the biggest innovation in the finance industry over the past 20 years was the ATM.
In a similar fashion it can be argued that getting rid of the huge inefficiencies and frictions in settling securities across European borders will do more to reduce costs and attract investment than any amount of fancy new leveraged derivative products with a three-letter name
The T2S planners will not get the glory or multi-million dollar bonuses that go with selling products that are too complex to understand, but they are the ones that truly deserve the plaudits.
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