Collaboration panel discussion at Sibos sparks age-old T2S debate

The decade-long building and implementation of the pan-European settlement system came under fire at the Sibos expo in Sydney as market participants face up to the realities of the project.

By Jonathan Watkins

Participants heavily involved in the TARGET2 Securities (T2S) settlement platform have defended its creation and capabilities, amid ongoing criticism of the time and money spent on the initiative.

The decade-long building and implementation of the pan-European settlement system came under fire at the Sibos expo in Sydney as market participants face up to the realities of the project, in comparison to other market initiatives and emerging technologies in the wider financial industry.

“Yes it brings advantages but it’s a big effort, and then 10 years later we still have a fragmented CSD structure, we still have no solution for corporate actions, we still have no harmonisation of issuance,” said John van Verre, head of global custody at HSBC.

The comments echoed similar sentiments from the same conference in 2017, where speakers lamented that the industry had “come too far to change” in response to notions of blockchain replacing the new settlement system.

However, speakers from Deutsche Bank and Clearstream at this year’s event in Sydney were on hand to defend the system that both have worked arduously on over the past decade.

“It wasn’t the delivery of one settlement system it was the replacement of 27,” explained Philip Brown, co-chief executive officer, Clearstream. “I think we’ll look back on it in 2025 and then you can really gauge it’s effect. By that time you will see issuers issuing differently because of the way T2S gives them access to a larger investor pool.”

Clearstream Banking Frankfurt, Clearstream’s domestic CSD, migrated to T2S in February 2017 and accounted for 40% to the overall volume on the ECB’s settlement platform.

Outside of its primary mission of settlement harmonisation and cost savings, the platform has also been publicised as benefiting collateral management and liquidity.

Throughout the later years of its construction, which was wrought with delays, there were multiple criticisms of the initiative, including from asset managers where the former Schroders COO discussed at a Global Custodian event in 2016 said he had gathered opinions from the buy-side on the European Securities Settlement engine and concluded it had been a “project of compromises and excuses”.

“I do think there is an element of keeping faith,” said Fiona Gallagher, global head of securities services & chief country officer for Ireland at Deutsche Bank. “We’re catching up on ourselves, the last 10 years have been challenging,”

“But then think about the last six months, think about every panel or topic here. The elements that have been implemented over the last six months, whether it’s been chat bots, people talking about big data projects, suddenly people have started to realise we need to start delivering smaller but tangible examples.

“If we bring that experience back and say ‘T2S as a whole hasn’t delivered what it needed to and it’s been painful but can we go back and make smaller changes to get things moving more quickly.”

The initial aim of the panel discussion was around collaboration and whether the industry can break down the barriers of vested interest in favour of a common goal.

Brown highlighted that the securities services industry is “a deeply networked business, so this questions of should you collaborate or should we compete is kind of moot because we do that already.”

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