The European Commission's banking and finance October newsletter explains exactly what Target2-Securities (T2S) is and why we need it.
T2S, launched on 22 June 2015, is a platform that delivers securities to the buyer and cash to the seller across all European securities markets. Taking a step back, Target was the Eurosystem's real-time gross settlement (RTGS) system for settling payments in central bank money, which was introduced in 1999. It was then decided that a similar platform should be developed for settling transactions involving securities and so T2S was born.
Initially five central securities depositories participated in T2S and a further 21 markets will join the platform over the course of the next 18 months. T2S is also open to other currencies besides the euro and according to Marc Bayle, director general market infrastructure and payments at the European Central Bank, Danmarks Nationalbank will make Danish krone available for settlement in T2S as of 2018.
In the latest EC newsletter, Bayle writes: “A key factor in the success of T2S is the collaboration between the public and the private sector. The market was involved throughout the entire development process, which meant that the platform could be shaped to meet the needs of its users and the knowledge and experience of a wide range of players could be drawn upon to achieve the best possible final outcome.”
So why do we need T2S? According to Bayle, regulations are becoming stricter on collateral requirements for banks, making liquidity and collateral management more important than ever. He states: “T2S enables banks to hold a centralised pool of securities, or collateral, making it easier for them to move collateral to exactly where it is needed at any given time.”
T2S also brings the following benefits:
- standardised pricing, so cross-border securities settlement can now cost the same as domestic settlement;
- it paves the way for greater competition between central securities depositories, which now have access to a wider market; and
- it reduces the complexity of Europe’s post-trade landscape, making Europe more attractive to investors.
T2S is part of the EC's drive towards a Single Market in Europe, creating financial integration. This video explains the basics:
Market risk at highest level for European securities
The Trends, Risks and Vulnerabilities Report, which covers market developments from January to June 2015, found that market risk in European securities markets has increased.
Societe General Securities Services launches new OTC derivatives reporting service
Multi-counterparty and multi-asset class trade repository reporting service for OTC derivatives for institutional investors or asset managers
FTT: is the European Commission preparing to limit just to levy on share transactions alone?
Could this be the game changer that corporates in Europe need?