A morning session on the second day of The Network Forum, moderated by Graham Ray, global business product manager in the securities services division at Deutsche Bank, brought together participants from along the value chain to assess whether the T2S initiative had so far lived up to expectations. The general sense, both among the panellists and in the auditorium, was that T2S has set the industry on a path of great promise, but that concrete opportunities, on the whole, remain to be realised.
Speaking to Global Custodian after the session, Ray suggested that the industry mood around T2S was partly shaped by the fact that it is one element in a complex set of changes that need to be completed before the full benefits can be felt. “The T2S project took one component of a value chain and put it onto an integrated platform,” he said. “That introduced a level of complexity, because it ‘decomponentised’ the value chain.”
According to Ray, the question is not whether T2S is the right piece of technology for the European market, but whether the participating markets underestimated how integrated they were and the challenges that would result from de-componentising settlement on to a common platform.
The industry harmonisation that preceded the live launch of T2S could not have been achieved without T2S itself, Ray argued. “Of course you could theoretically have done it, but you'd have been challenged with integrating different technology structures. T2S has unlocked that integration. If you don't have a common platform, you're at the mercy of your own technology.”
The creation of this common settlement platform has shifted people's focus to issues of asset servicing and how the new structure could be used to free up liquidity. “The question now is, ‘How can I create a structure that gives me safety and soundness, but also creates an opportunity?’”
Ray suggested that to fully realise this opportunity, other pieces of the puzzle – notably regulatory changes such as CSDR, MiFID2 and EMIR – will need to be in place.
“One challenge I see is that there are certain activities that are being replicated by, for example, global custodians, sub-custodians and CSDs, ostensibly for different informational requirements,” he observed. “We need to stop working in a siloed way. At the end of the process is an investor and they need a set of data from us which is pretty standard, but I do feel a little that we are not aligned on what data the investor actually needs.”
From a service provider perspective, said Ray, the process of de-componentising needs to move beyond settlement to other aspects of custody, allowing different combinations of services to be offered to clients, in some cases in collaboration with other providers. “As an industry, we are changing the way we work,” he stressed.