German settlement depository Clearstream Banking will join Target2 Securities (T2S). The supervisory board of parent company Deutsche Bourse decided on Monday that the entity would join the new framework.
The formal approval of Clearstream Banking AG, the German CSDs legal entity, is still pending. With 40% of European settlement volumes, Clearstream believes there is a good business case behind T2S and the CSD will leverage it to grow the asset pool.
T2S is a project launched by the Eurosystem to provide a common technical platform for securities settlement in Europe and is scheduled to start in 2015. There have, however, been two delays to the platform, with industry sources expressing doubt about whether it will go ahead and whether the projected costs of the project around 1.4 billion to date would outweigh the benefits.
Furthermore the debate continues about whether T2S will replace existing market infrastructure, with fears that it will lump together 24 CSDs, taking away their revenue base but not their cost base, forcing them to pass on rising costs to their users.
Amidst the debate about whether CSDs would lose their settlement margins in the new framework, Mark Gem, member of the Executive Board of Clearstream with oversight of business strategy for T2S at Clearstream, told Global Custodian that the (I)CSDs strategy is actually enabled by T2S: “We will build out our product set using T2S particularly in the collateral management space – T2S lowers the barriers to customers holding securities with us and also the frictional costs associated with moving securities cross border. In addition to these benefits, we expect that most Cleastream customers will pay less than they do today not only for cross border settlements but also for domestic settlements.”
“We believe that Clearstream is well placed to become the natural point of entry to T2S for banks looking to access European markets through one channel. Clearstream Banking Frankfurt as the German CSD is likely to account for nearly 40% of all T2S volume. On top of this scale, Clearstream has a huge experience of cross-border asset servicing in its ICSD space.
“Asset servicing will remain outside the perimeter of T2S. A client won’t hold a security collateral with us for long if we mess up the corporate actions. We will be working with local partners/ agent banks as processing partners. We’re confident there will be no barriers to using Clearstream.
“The settlement charge per transaction as envisaged by the ECB will be 15 cents but this was based on the assumption that 20% of T2S volumes would come from Non Euro currencies. We, in Clearstream, do not expect there to be any significant Non-Euro volume, so it is already clear to us that the T2S price will be higher than the advertised 15 cents. Nonetheless, we do expect them to be lower than those that apply in the German and other domestic markets today and for our part, are looking to pass these onto customers with no surcharge.”
Following this latest development, Clearstream is expected to sign the framework agreement for T2S at the end of April.
(JDC)