The executive management of VPS, the Norwegian CSD, has said it plans to join TARGET2-Securities (T2S), although it will not announce its final decision until November, according to a bulletin from Nordic custodian SEB.
T2S is the European Central Bank-backed, multicurrency, pan-European settlement platform due to go live in 2014. While many European countries have signed on to the platform, some have yet to commit, including Norway. Sweden, Switzerland and the United Kingdom, to name a few, also have not signed on to date.
The T2S project is expected to cost as much as 1 billion to develop, implement and run over the next decade, according to Global Custodian Editor-in-Chief Dominic Hobson in a recent report for custody analysts Thomas Murray. Without the volumes of key markets, development and operating costs could leave the platform in the red, so T2S backers are eager for new markets to join.
In theory, the more markets sign on to T2S and the higher volumes it processes, the cheaper settlement costs will be for all participants. Settlements on T2S are expected to be no more than 15 euro cents, which at current volumes would result in a revenue shortfall around 25% less than the platform needs to earn to recover costs, Hobson says. While markets such as Norway joining T2S would boost volumes somewhat, the project needs a huge market such the UK to join for it to achieve profitable figures, he says.
According to SEB, VPS estimates adoption of T2S will cost it around NOK 100 million ($18.6 million), similar to the estimate of other Nordic/European CSDs. The investment costs would be covered by market participants, SEB says.
VPS is seeking feedback from market participants about the decision to join T2S until October 1 and will announce its decision in November.
(CG)