Analysis: T2S wave four success went down to the wire

The migration of the fourth wave of the ECB’s TARGET2 Securities (T2S) project faced issues immediately up to the migration date, according to industry participants.

The fourth and largest wave of T2S took place on 6 February with around 40% of volumes migrating onto the platform including central Securities depositories (CSDs) from Germany, Austria, Hungary, Slovakia and Slovenia migrating to the platform.

“It was only very recently where we had the last migration testing weekend when not everything went according to plan i.e. there were slight delays in the processes at different points of interest,” said Graham Ray, product management, global head of investor services at Deutsche Bank.

“From a Deutsche Bank perspective we saw through testing certain elements that weren’t happening in the way we expected them to occur.

“For example, as we all know in the industry on the Austrian market, there was a challenge with one of the processes for pre-T2S dates before 6 Feb on the dedicated cash account at OeNB (National Bank of Austria) that meant we had to make a change

“People were aware of these issues even up to the Friday so on the Monday they could take an action if necessary,” said Ray.

Ray also puts the ultimately successful migration of wave four down to collaboration between industry bodies as well as the lessons learned from previous migration waves.

“If I look back to wave one when there were a set of challenges between different connectivity channels and some of the messaging requirements hadn’t thoroughly been ironed out.

“There were also some challenges around processing and issues around liquidity in the market but as we have moved forward those have been overcome and addressed.

“The reason why the platform has come together through to this stage has been lessons learned throughout the project and a real collaborative effort from the whole front to back team,” said Ray.

Mathias Papenfuss, chief operating officer at Clearstream also stressed the importance of transparency to reveal necessary issues with the project.

“From a testing perspective, we have been very transparent about the issues that we have seen in the past,” said Papenfuss.

“These have been mitigated in close cooperation with the T2S operator throughout the testing process and in the time preparing for migration.

“All parties involved built on the lessons learned during the entire testing process.”Initially proposed in 2006, the T2S initiative was designed to create a harmonised European settlement platform with settlement costs proposed at a maximum of 15 cents per settlement.

Since wave one of the initiative took place in June 2015, the project had been hit by delays and critics from industry participants.

In October 2015 Euroclear pushed back the date of moving its Belgian, French and Dutch CSDs to T2S, saying it needed more time for a ‘safe and stable migration’.

Speaking at the GC leaders event last summer, former Schroders COO Markus Reutimann describing the initiative as a project of “compromises and excuses that has missed all its targets”.

In spite of more than 80% of volumes now on the T2S platform, industry participants have also indicated that more work needs to be done before a totally harmonised post-trade Europe can be achieved.

‘We must recognise that T2S is part of an infrastructure change and there are still items to be addressed to reach harmonisation in a European environment,” said Graham Ray.

“There are still functionalities to be embedded, there are still some elements within cash proceeds and asset servicing to be addressed.

“We still have somewhere to go to achieve harmonisation in post-trade Europe,” added Ray.

BNP Paribas also echoed Ray’s comments following migration stating that some CSDs are yet to implement all the required functionalities and work to common settlement and corporate action standards.