Settlement Services Costs Expected to Increase Due to T2S

A small survey conducted by SIX Securities Services at Sibos found that even though TARGET2-Securities is supposed to reduce settlement costs, the majority of those surveyed think it will cause an increase in costs in the short term.

Specifically, the survey found that 63% of respondents (people from major European financial institutions) think T2S will increase costs in the short term, and only 38% think the cost of settlement services will be lower long term.

“I believe that people who are responding that way are responding on the basis of the total cost of ownership,” says Robert Almanas, head of international services at SIX Securities Services. While firms know that there is an explicit cost of T2S settlement, he says, they “are now starting to ask themselves the question, ‘What is my internal cost of adaptation on the basis of tech?’”

“I think they’re looking at the whole end-to-end cost, and if that’s the case, that’s good news…people are really thinking it through and being prepared,” he adds.

While firms may be preparing to adapt their middle and back offices, only 38% of respondents think their CSD is doing enough to prepare for T2S. Respondents also think that the harmonized platform will lead to consolidation, with 88% saying it will lead to that for settlement services providers.

Although respondents think T2S will increase settlement costs, they do unanimously see a more positive side to T2S in the sense that it will help firms optimize collateral management.

“With high-quality collateral becoming ever scarcer, this can only be a good thing,” says Almanas.

In a comprehensive study conducted by Clearstream, the CSD found that T2S could result in €33 billion of Tier 1 capital savings for all eurozone banks. Phillip Brown, Clearstream’s head of client relationships, Europe and Americas, says that an unnamed dealer told him that “the settlement benefits of T2S pale in significance relative to the capital benefits.”