Custodian brings up cost and volumes shortfalls in ECB’s T2S report

Several complications related to corporate actions, differences in tax regimes and securities law between EU member states, have built barriers to entry for T2S.

By Joe Parsons

Banks connected to TARGET2 Securities (T2S) have not seen the volumes and reduced costs for settlement as anticipated, according to one opinion in a new report from the European Central Bank (ECB).

The pan-European settlement platform has been in operation for over three years, with 23 of Europe’s central securities depositories (CSDs) harmonising the securities settlement process.

But several complications related to corporate actions, differences in tax regimes and securities law between EU member states, have built barriers to entry for certain financial institutions, resulting in lower than expected volumes, according to one of the major players in the initiative.

“The most difficult parts need time so that expectations can be delivered, and local peculiarities still exist,” said Eric de Gay de Nexon, head of strategy, market infrastructures and regulation, Societe Generale Securities Services. “Real cross-CSD settlements remain marginal, volumes are below initial assumptions and total costs have not decreased as anticipated. As for the expansion of service offering, that is still seen as evolving.”

De Gay de Nexon also casted doubt on the Investor CSD model, which acts as a single point of access to all European CSDs connected to T2S, in which it “has yet to prove itself.”

Last year, Clearstream launched their Investor CSD model and by the end of 2018 it had connected the Austrian, Belgium, Dutch, French, Italian, and Luxembourg markets to the model.

However, he explained market participants should remain confident in the potential benefits of T2S. He also said banks being a directly connected party of T2S will provide immediate access to the settlement platform and pooling intraday liquidity needs.

Jesus Benito, CEO of the Spanish CSD Iberclear and chair of the T2S CSDs Steering Group, also highlighted the need to be patient with T2S.

“We believe that it is necessary to give T2S stakeholders time to adapt to the new landscape, rather than rushing into new ambitious and costly projects,” said Benito.

“Structural changes require time to become reality.”

Benito also warned that the European Central Bank should avoid encroaching on the responsibilities of the private sector by creating additional infrastructures, such as a pan-European CSD which some market participants have called for.

“As we belong to listed companies, we are obliged to defend the legitimate interests of our shareholders. Nationalisations are costly and very difficult to justify nowadays in Europe,” Benito added.

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