T2S Boost As Euroclear Signs Up In Three Countries

Terry Flanagan

Four more European central securities depositories (CSDs) have signed up to the European Central Bank’s Target2-Securities (T2S) scheme, which is intended to streamline settlement across the region, but a few of the region’s CSDs are likely to remain out of the much-delayed initiative.

With the final June 30 deadline for the project nearing, three Euroclear CSDs operating in the eurozone—Euroclear Belgium, Euroclear France and Euroclear Nederland—have decided to sign up, giving the project a big lift. The Central Securities Depository of the Slovak Republic also added its name to the scheme earlier this week.

Belgian-based Euroclear, which handles around 30% of all settlement volumes in the eurozone area, has joined the other large eurozone CSD, Germany’s Clearstream, which accounts for 40% of all volumes in the area, in backing the project. However, Euroclear Sweden and Euroclear UK & Ireland have both opted out of T2S, while its other European operation, Euroclear Finland, remains undecided.

“The three Euroclear group central securities depositories are reflecting local market sentiment by taking the decision to sign the T2S framework agreement,” said Joël Mérère, chairman of the boards of Euroclear Belgium, Euroclear France and Euroclear Nederland.

“As the first and only group of markets in continental Europe to have consolidated and harmonized transaction settlement and custody services on a shared platform, we appreciate the benefits of large-scale processing consolidation and harmonization that T2S has the capacity to provide.”

The European Central Bank says T2S, the IT project, 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.

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. So far, CSDs from the UK, Sweden and Switzerland have opted out of the plans.

“Outside the euro area, the short term perspective is less favorable because non euro currencies will not join at the beginning,” said Jean‐Michel Godeffroy, director-general at the European Central Bank and chairman of the T2S program, in May.

In its last update, in May, the European Central Bank said that all euro-area CSDs and several from outside the euro area would 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.

By signing up, the three Euroclear CSDs will outsource settlement transaction to T2S once it is up and running. Euroclear, the world’s largest international CSD, already processes transactions on a shared platform, the only group of CSDs in Europe to do so, and is more prepared than most for the changeover. Clients of the three Euroclear CSDs will continue to have accounts directly with the respective CSD and receive the full range of post-trade services from that CSD.

“Euroclear has been preparing to operate within a T2S environment for some time,” said Valérie Urbain, chief executive of Euroclear Belgium, Euroclear France and Euroclear Nederland.

“Our asset servicing capabilities are expanding, and we are introducing collateral management services for clients in the Belgian, French and Dutch markets, as well as with some local central banks. The depth and breadth of the domestic and cross-border post-trade services we offer will clearly help clients get the most out of the new operating environment in the easiest way possible.”

In March, the European Commission announced plans to overhaul the settlement of share and bond trades across the region. The CSDs across Europe processed approximately €920 trillion worth of transactions in 2010, but the Commission wants to turn this fragmented landscape into a more efficient and better regulated system.

The Commission wants to introduce legislation that cuts settlement to a two-day (T+2) timeframe, fine market participants who fail to settle securities deals, cut cross-border trading costs for investors, which can be as much as four times the amount of a domestic trade, and abolish paper share certificates by 2020.

“T2S is there and we are going to have to make sure that whatever comes out of the CSD legislation allows Target2-Securities to work so they have to work in tandem,” Kay Swinburne, a UK center-right MEP, who is tasked with guiding the CSD legislation through Brussels, told Markets Media.

“We don’t foresee anything in our report that we will see in any way be contrary or slow down the T2S program.”

The Commission’s proposals on the settlement of trades first needs the support of the European parliament and the countries of the 27-nation bloc before it can become law. Any new law is expected to hit the statute books some time in 2014.

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