BNP Paribas Explores CSD Options, Partners with SWIFT for T2S Connectivity

BNP Paribas Securities Services will use SWIFT to connect to TARGET-2 Securities (T2S), the harmonized settlement system for Eurozone securities.

The European custodian said it selected the utility’s Value Added Network as it aims to provide a “reliable and resilient infrastructure for communication with T2S”. BNP Paribas has had a long-standing relationship with SWIFT.

T2S will facilitate delivery-versus-payment settlement in central bank money in substantially all securities in the Eurozone. SWIFT’s VAN solution offers the best price and the least upfront cost for connecting to T2S, said BNP Paribas.

Philippe Ruault, head of products, clearing, settlement, custody and market services at BNP Paribas Securities Services, said: “Our set-up on T2S is a direct connection to each and every issuer CSD and we have opted for SWIFT to connect to T2S.”

Ruault added the custodian is keeping all options open. “With regards to T2S, we believe that some consolidation may happen in the CSD space, so at the moment we don’t see any reason to add a new CSD in a T2S environment,” he said.

SWIFT and SIA Colt are the two network providers that custodians can use to connect to T2S when it goes live in 2015.

BNY Mellon CSD signed a framework agreement in May to outsource settlement to the T2S platform.

Alain Pochet, head of Clearing, Custody and Corporate Trust Services, BNP Paribas Securities Services, says: “As a major securities services provider, we will connect directly to T2S to reap its benefits and pass them on to our clients. We will therefore build our services for the T2S environment on the strongest foundations. We are confident that SWIFT’s T2S connectivity solution is the best choice for us and our customers, bringing unmatched benefits in terms of resilience, reliability and cost.”

Alain Raes, chief executive, EMEA and Asia Pacific, SWIFT, adds: “We are delighted to see this latest development in our relationship with BNP Paribas. This agreement shows the value of SWIFT’s VAN solution for T2S for securities services providers. We look forward to supporting BNP Paribas and all our customers during the transition to this new European settlement platform and beyond.”

SWIFT’s T2S connectivity services start from analysis, and progressing through implementation, testing and migration, all the way to live operations.

BNP Paribas is also focusing on collateral transformation services as the European securities industry moves towards mandatory clearing for OTC derivatives.

Helene Virello, the custodian bank’s head of collateral management services, notes particular challenges for UCITS funds, which face restrictions on collateral transformation for OTC derivatives. “We don’t know how some fund managers are going to find the collateral,” she says. “You need to have clear rules on this.”

Under the ESMA rules, UCITS funds are restricted to borrowing only a limited portion of their portfolio, which can be around 15%, but they are lobbying. “They need to adapt or they may avoid OTC derivatives altogether,” said Virello.

“2014 will be the turning point in terms of what instruments that will be accepted as collateral. For certain portfolios, especially those which have no available & eligible collateral, there is already talk of synthetic instruments being used to avoid facing collateral transformation issues.”