Pan-European Settlement System Advances

Terry Flanagan

ECB awards network services licenses to SIA and Colt.

The European Central Bank has awarded SIA and Colt network service provider licenses for the design, creation and management of the new infrastructure that will link central depositories, Eurosystem central banks and the leading European bank groups to TARGET2-Securities.

TARGET2-Securities is designed to create a single European platform for the settlement of securities transactions. It will be managed by four central banks (Banca d’Italia, Deutsche Bundesbank, Banque de France and Banco de Espana)

SIA, a service providers in Europe in the banking and financial sectors, processes a daily average of over 3 million transactions through a proprietary network infrastructure (SIAnet) with two operational hubs, one in Milan and one in London.

Colt, a European information delivery platform, is an established provider of managed services to the financial sector. It provides connectivity to a number of stock exchanges across Europe and some of the fastest connections between key trading capitals such as London and Frankfurt.

To allow access to T2S, the two companies will develop secure, high speed connectivity and messaging services in line with the requirements and specifications defined by the ECB. SIA and Colt’s network architecture will also permit CSDs (such as Montetitoli, Euroclear and Clearstream), central banks and the major banks operating at European level to access the new securities transactions settlement platform.

As network services providers, SIA nd Colt  will not only deliver basic connectivity services, but also a limited set of value-added connectivity services,  such as encryption key management, confidentality, and authentication.

The implementation of T2S, a uniform, 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 in 2015.

In order to strengthen its catalyst role in this regard, the ECB has set up a high-level Harmonization Steering Group (HSG) 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.

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.

T2S will house market participants’ central bank cash accounts and securities accounts in a single place, thus facilitating settlement in central bank money.

This differs from the current situation in which securities accounts are housed at CSDs and central bank cash accounts are housed at the ECB, which means that settlement requires the sending of messages to and from the CSD and the central bank to confirm the transfer of securities and the cash.

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