A holistic approach from the industry towards Target2securities is required to reveal the project’s benefits according to the T2S project leader at SocGen.
Speaking to Global Custodian during the NeMa event in Dubrovnik, Hugh Palmer suggested that the project’s benefits have grown deeper than initial settlement costs proposed in 2006.
“The industry needs to have a more holistic approach to settlement costs in T2S because the external fees are only a small fraction of the total settlement costs that a back office encounters.
“So where T2S adds value and benefit in terms of reducing the total cost of settlement is the increased harmonisation and the tools that have been developed such as linking of transactions,” said Palmer.
Initially proposed by the ECB in 2006, T2S was designed to create a single European settlement platform.
Its original objectives included harmonising settlement rules, increasing settlement safety and efficiency as well as reducing costs.
In March, T2S program director at J P Morgan Alex Dockx suggested that the costs associated with the project were unsustainable.
Palmer also feels that a firm’s back office will now be able to benefit from T2S implementation.
“We’ve also seen harmonisation across the markets, let’s not forget that getting 20 markets to agree to a single process is quite an achievement. This means that we as a custodian can now adopt a more pan-European approach to the organisation of the back office.
“New settlement tools also allow you to increase your settlement efficiency even if the resulting increase is only small in percentage terms.
“The ballpark industry figure is around 96% of settlements are handled hands free, so the remaining 4% is handled by your back office. Therefore, even if you are increasing STP settlement by only 1%, that will have a positive impact on your back office costs,” said Palmer.