A joint venture of 11 CSDs has signed an agreement with SWIFTs Value Added Network (VAN) solution to connect to TARGET-2 Securities (T2S), a centralized framework for securities settlement in Europe.
The agreement marks the first time that CSDs beyond Europe, including Strate and the Egyptian CSD MCDR will be linking to T2S, and will pave the way for others to join and make T2S a more viable proposition. The framework was initially set up for reduced settlement fees, based on a concentration of securities settlement volumes in Europe. However, the business case has changed since the UK and Sweden, who would have contributed a substantial some of the settlement volumes, decided not to join.
The agreement will also see the joint venture, called Link Up Markets (LUM), leveraging SWIFTs IT experience in the future development of its common infrastructure, which spans the LUM partners in Europe and beyond, to enable interoperability between CSDs and improve efficiency of cross-border processing.
SWIFT will take control of the CSDs connectivity to SWIFT and their IT architecture for this purpose will fall away.
At the same time, said LUM in a statement, the CSDs will benefit from new value-added services including transformation, testing and standards being developed by SWIFT in conjunction with its community of market infrastructures to address common infrastructure problems and mutualize cost of deployment.
Irene Mermigidis, managing director, Link Up Markets, said: The Link Up Markets CSDs will achieve significant cost savings by connecting to T2S through SWIFT. As global financial services provider, SWIFT is perfectly positioned to extend the benefits of interoperability already achieved through Link Up Markets to an even wider community. The CSDs are also keen to tap into the value-added services SWIFT is developing to address common industry problems, and support their market participants by extending the benefits of streamlined, standardized communications further into their domestic environments.
The initiative comes as CSDs settlement functions look set to be commoditized under T2S and these infrastructures target value added services for sources of revenue. They need to go up the value chain by establishing links, Mermigidis told Global Custodian. While T2S only addresses settlement, asset services are becoming a reality. Through linked up industry solutions CSDs and other direct participants remain with the market. This is a community value proposition. It brings expertise of standards and testing for LUM and other CSDs through SWIFT, which has a community of users who can collaborate not only on T2S connectivity but also on standardized testing and a service support solution.
LUM is a joint venture between the CSDs of Austria (Oesterreichische Kontrollbank), Cyprus (Cyprus Stock Exchange), Denmark (VP Securities), Egypt (MCDR), Germany (Clearstream Banking AG), Greece (Hellenic Exchanges), Luxembourg (VP Lux), Norway (VPS), South Africa (Strate), Spain (Iberclear), and Switzerland (SIX SIS), which represents 50% of European as well as 90% of African securities transactions.
In addition to SWIFT, a SIA-Colt partnership serves as the other connectivity solutions for CSDs as they connect to T2S. The third option for CSDs under T2S is for them to connect to the infrastructure directly. LUM chose SWIFTs VAN as it offered a community value proposition, said Mermigidis.
T2S, which currently has 23 CSDs signed up to its framework agreement, will become mandatory in 2015.
Since its launch in 2009, LUM sought to increase collaboration amongst CSDs in the run up to T2S. Commenting on future partners, Mermigidis said: We would welcome whoever is going to help us mutualize cost as a neutral provider supported by SWIFT.
Every CSD is a shareholder in LUM and, while not all shareholdings are the same, no one CSD has a majority shareholding.
Gottfried Leibbrandt, CEO, SWIFT, comments: We are delighted that the Link Up Markets CSDs will use SWIFT to connect to T2S, and thank them for their contribution to the development of the value-added services we are creating for the securities market infrastructure community. We look forward to continuing to work closely with these 11 leading CSDs to help them and the securities market infrastructure community globally to develop solutions at lowest cost.
(JDC)