TARGET2-Securities, which was launched in 2008 to harmonise cross-border securities settlements in Europe, has finished its final migration wave of central securities depositories.
T2S allows settlement in central bank money across borders, central securities depositories and currencies so there is no difference between domestic and cross-border transactions. Participants can use one cash and securities account for all T2S markets, which now have the same cut off times, allowing liquidity and collateral to be pooled. Banks no longer need to hold sufficient collateral buffers in all relevant markets and auto-collateralisation in T2S means securities can be settled immediately, removing the need to keep surplus liquidity.
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T2S began operating in 2015 after being launched by the European Central Bank in 2008 to end fragmentation in securities settlement across the Eurozone as the cost of cross-border transactions could be 10 times more expensive than domestic transactions. After Germany's Clearstream was among the six migrating CSDs who joined T2S in February this year, 18 CSDs representing 16 markets had migrated, representing more than 80% of the total volume on the platform ahead of this fifth and final migration wave.
Yesterday Iberclear Spain and the central securities depositories from Estonia, Latvia and Lithuania completed their first operational day on T2S.
Iberclear said in a statement: “This step marks the second phase of the reform of the Spanish clearing, settlement and registration system, which features changes to the fixed income securities, which are now settled together with equities on a single platform, Arco.”
The first phase for equities in April 2016 introduced a central counterparty and also reduced the settlement cycle from three days after a trade to two days.
“This step will allow the post-trade system in Spain to be aligned with those of other leading European securities markets within the Eurozone, increase its efficiency, optimise costs and enhance its competitiveness, a key aspect in an increasingly competitive environment,” added Iberclear.
Nasdaq merged the CSDs of Estonia, Latvia and Lithuania into a single licensed legal entity in order to join T2S.
Indars Ascuks, head of the Nasdaq Baltic Market and chief executive of Nasdaq CSD, said in a statement: “With the consolidation of the national CSDs, the migration of Nasdaq CSD to T2S, the new core CSD IT platform and the start of the operations under the CSDR regime, the Baltic securities market is undergoing one of the biggest transformations in its history. We believe that these changes will increase the competitiveness of the Baltic securities market and create valuable synergies for all participants.”
The ECB said in a blog: “Developing an integrated securities settlement platform, before we had a fully harmonised rulebook for post-trading, was said to be the wrong way to achieve our goal. But the development of T2S has shown that, if you provide the market with a concrete initiative, the various national market stakeholders will embrace harmonisation as they can see its potential benefits.”
Ascuks told the ECB that Nasdaq CSD provides Baltic customers with a centralised access point to T2S making cross-border settlement easier and more efficient, ensuring more integrated and cost-effective securities trading and post-trade services.
Jesús Benito, chief executive of Iberclear told the ECB that the Spanish market had plans for new settlement and asset services for securities issued in other CSDs now that it is connected to T2S.
“Links with T2S CSDs – which before migrating were complicated – have suddenly become delivery versus payment links that are fully harmonised with domestic settlement procedures. We believe this is an opportunity that Iberclear has to take advantage of for the sake of its current clients,” added Benito.
All the CSDs that signed the contractual agreement have now migrated to T2S and are able to settle all their securities transactions in euros - with an average of 550,000 transactions expected to be settled every day. Settlement in Danish kroner is due to be possible by the end of next year and other CSDs and currencies are invited to join upon request.
“Currently, no other currencies are planning to migrate, but T2S is ready if other countries see the potential of being part of the single pan-European settlement platform,” added the ECB. “In addition, the Eurosystem, in close collaboration with the market stakeholders, is committed to continuing to pursue the remaining T2S harmonisation objectives within the wider context of the capital markets union.”