Custodians defend T2S against buy-side criticism

Well-known buy-side figure Markus Ruetimann relayed strong criticism from the asset management industry on T2S last night before a panel of custodians at the GC Leaders event.

The former Schroders COO 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”.

“That’s the view of the buy-side,” he said. “It’s called Target2Securities but it seems to me to have missed all its targets.”

The panel of custodians defended the initiative though, agreeing that while some of the originally touted benefits may not have been realised, the industry has seen other positives from T2S.

Deustche Bank’s head of global securities services and GC Legend Satvinder Singh and head of HSBC securities services Cian Burke discussed how the current levels of success is not what was originally envisaged when the initiative was launched.

“T2S is a great catalyst for collateral and liquidity and these are two buzzwords that have become reality,” said Singh.

“Access to collateral and optimising liquidity are the two most important things in our industry and clients that have optimised that correctly have been more successful than those who have focused on settlement.

“Clients are saying to me, ‘forget settlement, we have saved significant amounts of money through collateral management’ and T2S was a catalyst for this.”

Burke suggested that it would be hard to define T2S as a success due to its impact on collateral as such benefits were not envisaged when the project was first launched.

“When you look back at when T2S first started it absolutely was about settlement and cost reduction and we had the view that settlements would go down,” he said.

“The benefits that you are now defining – collateral management – are absolutely true but they are not benefits that were envisaged ten years ago.

“The landscape has changed dramatically with the advent of clearing houses and the need to collateralise has come about since then but I don’t think you can assess the success of it by these benefits.”

Initially proposed in 2006 by the ECB, the T2S initiative was designed to create a harmonised European settlement platform with settlement costs proposed at a maximum of 15 cents per settlement.

Numerous industry commentators have since expressed concerns over the project.

Earlier this year chief executive officer of EuroCCP and GC Legend Diana Chan suggested that the market may have evolved away from those looking to save money on reduced settlement costs through the initiative.

Additionally in February Clearstream chairman Jeffrey Tessler suggested that the proposed settlement savings would be harder to achieve than initially thought.