T2S impact won’t lead to CSD/sub-custodian merger

Experts say sub custodians and CSDs will maintain different roles in settlement industry in light of T2S rollout.
By Paul Walsh
The continued development of Target2 Securities (T2S) will not lead to a merger between central securities depositaries (CSD) and sub-custodians, a panel of experts has said.

Speaking at Sibos 2016 in Geneva, an audience poll revealed that 54% of audience members believed that T2S would have the most impact on CSDs while only 36% believed that it would have the most impact on sub-custodians.
The result prompted moderator Dominic Hobson to suggest whether CSDS and sub custodians would look at merging.

Mathieu Maurier, global head of sales & relationship management at Societe Generale, spoke of how the respective natures of CSDs and sub-custodians would make such a merger difficult.

“Sub custodians are banks and will therefore look to be competitive whereas CSDs are not looking to enter the competitive environment and they are looking at reducing their own inefficiencies.

“Ultimately we are talking universal banks and although there are some attempts to merge, we are talking about two different worlds.”

Fellow panellist Niels Olsen, CEO VP Securities concurred with Maurier but did suggest that there may be closer relationships between the two market participants.

“There will not be a merger between CSDs and sub custodians, there will be closer relationships but no kind of merger as the banks enter the competitive industry whereas the CSD will aim to support customers and support efficiency among customers.”

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.

Earlier this month, Euroclear has successfully migrated its central securities depositories in Belgium, France and the Netherlands over to the T2S platform.

VP Lux (Luxembourg) and VP Securities (Denmark) also made the transition with T2S now processing 45% of the total transaction volume expected.

Following the migration panellist and Euroclear director Edwin De Pauw believes that major changes should not be expected before the end of 2017.

“Don’t expect major changes before 2017 but what we do see engage in conversations with each market player focusing on their own strengths while moving towards collaboration models,” he said.

The panel also concluded that in spite of the volumes migrating to the T2S platform, nobody is looking at the platform “from a radical perspective” and that the emphasis should be on implementing T2S on a cross border level rather than focusing purely on a domestic level.

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