T2S to Lead to Consolidation of Securities Depositories

Terry Flanagan

Switzerland’s SIX Securities Services is expecting consolidation amongst European central securities depositories over the next five years as Target2-Securities (T2S) begins going live this June.

T2S, backed by the European Central Bank, is a technology platform which aims to harmonise securities settlement across the Europe by making settling trades across hordes 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.

Once T2S goes live, market participants will be able to settle transactions across the Europe through one CSD, rather than needing to have relationships with a number national CSDs for separate settlements in each country.

Avi Ghosh, head of marketing and communications, at SIX Securities Services told Markets Media: “Over the next five years there will be a lot of consolidation of CSDs leading to two to three big players. Many national CSDs will just become registrars.”

He argued that SIX Securities Services will be one of the survivors, despite having to compete with large international CSDs such as Euroclear or Deutsche Boerse’s Clearstream.

Switzerland is not part of the European Union and so SIX Securities Services has developed international capabilities.

“Connectivity is a skill and we are only national CSD with large cross-border capabilities,” Ghosh added. “We have a history of creating innovate technology solutions and we manage liquidity for whole of Switzerland.”

It is also possible that SIX Securities Services could partner with the international CSDs.

The Swiss CSD is connecting to T2S in June with a group that includes Borsa Italiana’s Monte Titoli, the largest CSD in the first phase. Other CSDs will continue to connect in two successive waves in the summer of next year and 2016.

Ghosh believes it is very important to be a first mover in T2S as most global custodians and international banks in Europe will choose to connect to two or three CSDs rather than just one. “Being first allows us to to get to know the system better than anyone over the next two or three years,” he added.

In addition clients have already begun to test their own connections to T2S via SIX Securities Services. Ghosh said he does not expects any problems to T2S going live in June as client education began18 months ago. “Very large-scale clients have said they are interested in working with us,” he added.

Ghosh said T2S is not just a technology project. He said: “This is transformation. T2S will change interactions dramatically in collateral management, liquidity management and securities financing.”

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.

Emily Cates, a specialist at global capital markets consultancy GFT Group, told Markets Media this month that the ability to pool assets and manage 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.”

This month Keler, the Hungarian central securities depository, signed a contact to connect to the third phase of T2S.

Featured image by Gajus/Dollar Photo Club

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