Clearing and Settlement

European Central Bank's New Settlement Platform: Some Yeas, Some Nays and Lots of Uncertainty

It isn't exactly mayday for the European Central Bank's Target2 Securities platform, also known as T2S.


In fact, the ECB is holding a party on May 8 in Frankfurt to celebrate the early signatories to the T2S platform -- all nine of them that is. Those are the national securities depositories that signed legally binding contracts outlining their terms of engagement with the ECB by April 30. Even so, some of the nine are non-eurozone securities depositories that will only send their euro-denominated trades -- a small percentage of their overall settlement business -- to T2S. It appears that T2S will only be settling transactions in the euro currency and in central bank monies.


Listed on the ECB's website the depositories are: Bank of Greece Securities Settlement System; Clearstream Banking Germany; Depozitaril Central Romania; Spain's Iberclear; Lux CSD and VP Lux in Luxembourg; Monte Titoli; National Bank of Belgium Settlement System and VP Securities in Denmark. The National Bank of Belgium will be doing so only for Belgian government bonds. VP Securities will be sending only euro-denominated trades to T2S. Monte Titoli is owned by the London Stock Exchange Group which inherited the Italian depository system through its takeover of parent Borsa Italiana.


Several notable depositories are vetoing the idea of joining T2S at its start for settlement in their local currencies. They are Euroclear UK & Ireland; Euroclear Sweden; Norway's VPS; Denmark's VP; Switzerland's SIX; as well as depositories in many new European Union member states that are not using the euro as their national currency.


Who is left? The list of eurozone CSDs that haven't committed is pretty long. It includes the depositories of Austria, Belgium, Cyprus, Finland, France, Malta, the Netherlands, Slovakia and Slovenia. They have until June 30 to make up their minds. The depositories of Belgium, France, the Netherlands and Finland are part of the Euroclear clan.


T2S is a new platform to be operated by the ECB which claims it will reduce the costs of processing Eurozone securities transactions by centralizing their settlement to a single system. National European securities depositories have been asked to outsource their settlement functions to the ECB and sign binding contracts. In 2009 about twenty seven, including nine non-European had signed non-legally binding contracts and it was predicted that T2S would go live in June 2013 after the lot signed final commitments.


Since then, some national European central banks, market participants and securities depositories have soured a bit on the initiative, questioning whether the ECB can deliver on its promise of lower fees for investors to settle domestic and cross-border trades. The launch date for T2S has been pushed back several times and at last count it was mid-2015. The estimated cost to build T2S has also skyrocketed to about EUR 1.3 billion -- a far cry from the initial EUR 350 million. Therefore, without approval of some key national European central banks and securities depositories, it is unclear whether the ECB will be able to keep its low settlement rates based on anticipated high settlement volumes. In November 2011, the ECB decided to provide some incentive, offering to give depositories which signed by April 30, 2012 "early bird" rates.


Euroclear UK & Ireland, the national securities depository of the UK and Ireland, and Euroclear Sweden, Sweden's national securities depository, say they aren't joining T2S because their respective central banks and markets have opted out. Members of Euroclear UK & Ireland in Ireland will be able to access T2S through one of the other Euroclear depositories, provided they join T2S, according to officials at the parent firm Euroclear SA who declined to speculate on what the depositories in Belgium, France, the Netherlands and Finland will do.


"The boards of these Euroclear central securities depositories will meet at different times until the end of June at which time the decision to sign the contract with the ECB to use T2S will be taken," says Jan Lemeire, director of product management for Euroclear SA. "Board members are in the process of consulting with clients of the respective CSDs through well-established market advisory committees before the board meetings to receive final input from their market representatives. We expect the CSDs will have taken decisions before the June 30 deadline."


The laggards aren't exactly crying over missing out on the early bird special. "The T2S price incentive offered by the ECB to sign early will apply to CSDs that migrate their business to T2S during one of the early waves. All CSDs will pay the same fees to use T2S once all CSDs that have signed the contract have migrated to T2S," says Lemeire. "Thus, the lower fee incentive offered by the ECB will be in effect during the migration period only."


Last November, a document issued by the ECB described the early bird special as follows: waiving its one-time fees to join T2S; waiving of all fees during the first three months of T2S' operation and a reduction by one-third of T2S fees thereafter. The cut by one-third will apply from the date of the migration of a central securities depository to T2S until the end of the last "regular migration wave." That's the time it takes other CSDs to migrate.

Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through



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