End-Users Still Face Unknowns Over T2S

With less than six months to go before the first wave implementation, the incoming TARGET2 Securities (T2S) settlement platform in Europe is still creating confusion amongst clients of custodians and broker dealers, according to industry experts.
By Joe Parsons(2147488729)
With less than six months to go before the first wave implementation, the incoming TARGET2 Securities (T2S) settlement platform in Europe is still creating confusion amongst clients of custodians and broker dealers, according to industry experts.

Speaking at an industry conference last week, panelists said they are still facing problems getting some of their clients to make decisions for the post-T2S environment because of several ‘unknowns’.

Due to regulatory uncertainties throughout the lifespan of T2S, many custodians and broker dealers are still in the analysis phase in formulating a business model for when T2S goes live. This, in turn, is having a significant effect on the strategies of their clients.

“Very few clients have been able to make a definitive decision around this because there are too many unknowns,” said Alan Cameron, head of relationship management, BNP Paribas Securities Services.

“This process is taking much longer than we all thought it would take, and we are seeing it happen. For example in Italy, some of the mid-sized banks have decided to give up their CSD membership and move to using agent banks.”

“The fine pricing from the CSDs (central securities depositories) is really unknown, and even if the CSDs tell you what the pricing is going to be, nobody can tell what it is going to be in two to three years’ time because everybody’s business model is changing so dramatically.”

Market participants are gearing up for the first wave launch of T2S, which is scheduled for June 2015.

However, according to the panel, smaller European markets and smaller clients have not wholeheartedly engaged with the programme up until now. In some cases, uncertainties remain over pricing.

For broker dealers that have a huge cross-border client base, it has been difficult in getting everyone on board with the project.

“Getting our U.S. counterparts over the line with the fact that settlement will happen in central bank money has been one great conversations we’ve had over the last six months,” said Lee Burman, global head of market infrastructure, Morgan Stanley.

“To them, U.S. central bank is always seen as the last resort, and now we’re saying it is becoming integral to what we’re doing.”

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