Asset safety curbing benefits of T2S

Industry participants warn asset safety and segregation issues will restrict proposed benefits of the ECB’s T2S initiative.
By Paul Walsh
Asset safety and segregation issues risk preventing industry participants from achieving the full benefits from the ECB’s TARGET2-Securities (T2S) initiative, a panel of experts has said.

Speaking at a SIX Securities Services post-trade forum in London, Polina Evstifeeva, vice president for market advocacy at Deutsche Bank questioned how the full benefits from the T2S project can be achieved if market participants must fully segregate assets.

“T2S is based on an omnibus account structure so the key question is in terms of interoperability of the central securities depositories (CSDs) in the T2S scenario.

“Say if I want to buy the shares of a German company using an Italian custodian, if I’m required to segregate the assets, would that mean I have to open a separate account with my Italian custodian and then would the Italian custodian have to open an account for myself and the German company.

“So we need to see how this will works in practice and question how all the T2S capabilities can be used in full if we have to segregate,” said Evstifeeva.

Wave four of the T2S project took place in February with Clearstream Banking Frankfurt along with CSDs of Hungary, Slovenia, Slovakia, Austria and Luxembourg migrating to the platform.

In total, more than 80% of volumes have now migrated to T2S.

Panellists also suggested that in spite of T2S being almost complete, there are still gaps in the post-trade European landscape in terms of asset safety.

“Looking at T2S in terms of a settlement engine, it just highlights in terms of regulation that we should be moving towards a far more harmonised playing field across Europe but we are not there and in fact we are far from there,” said Ian Woodberry, network manager at Morgan Stanley.

“In terms of the legal application of asset safety in this context at a fully segregated level we still have different interpretations across different markets.”

Following migration in February BNP Paribas Securities services also suggested that issues concerning CSD functionalities and corporate actions standards means post-trade Europe was far from harmonised despite the migration of T2S wave four.