HSBC warns of short term T2S cost increase

Participants in the T2S initiative may experience an initial increase in domestic settlement costs, according to HSBC.
By Paul Walsh
Costs of domestic settlement under the Target 2 securities (T2S) initiative may rise in the short-term according to the head of regulatory affairs at HSBC.

Henry Raschen told Global Custodian that the cost for domestic settlement may increase before the longer-term benefits of the initiative come to fruition.

Numerous industry commentators, including Clearstream’s Jeffrey Tessler, have also suggested that the proposed savings outlined under the initiative will be harder to achieve than originally thought.

“Will T2S save me money? Yes for cross-border settlement, as T2S enables this to be carried out at the same cost as domestic settlement,” said Raschen.

“However, in the short- to medium-term domestic settlement costs may rise as the existing CSD charges are added to the charges of T2S,”

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.

Raschen also pointed out that main benefits of T2S now stretch beyond reduced settlement costs and have moved onto the movement of collateral.

“The simpler movement of collateral across borders that T2S offers is very valuable in order to satisfy the post-crisis regulatory demands for high grade collateral in many transactions.”

Raschen’s comments echo those made by EuroCCP CEO Diana Chan, who earlier this year who suggested that T2S savings will primarily benefit collateral managers

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