[ I N
D E P T H
|
T 2 S ]
“Has it [T2S] delivered? The promises
have delivered, you could argue it hasn’t
reached 100%.”
THILO DERENBACH, GENERAL MANAGER OF THE
CLEARSTREAM BANKING UK BRANCH
but it has also given us a framework for
standardisation of other parts of the post-
trade value chain. While it hasn’t come
up with a unified way to do registration
in Europe yet, it has given us a framework
to do that and there are initiatives on the
way especially on corporate actions. If it
wasn’t for T2S we wouldn’t be where we
are to standardise in Europe.”
Opinions differ
From a buy-side perspective, speaking
at the Global Custodian leaders event
in 2016, former Schroders COO Markus
Reutimann described the initiative as a
project of “compromises and excuses that
has missed all its targets”.
Other opinions and views have varied
over the years. In 2017, ECB executive
board member Yves Mersch stated that
various tax and corporate action issues
will not be addressed by T2S. At Sibos
2018, John van Verre, head of global
custody at HSBC Securities Services, said:
“10 years later we still have a fragmented
CSD structure, we still have no solution
for corporate actions, we still have no
harmonisation of issuance.”
His comments echoed similar sen-
timents from the same conference in
2017, where speakers lamented that the
industry had “come too far to change” in
response to notions of blockchain replac-
ing the new settlement system.
Going back to 2017, some of Global
Custodian’s headlines included: “Industry
participants warn asset safety and segre-
gation issues will restrict proposed ben-
efits of the ECB’s T2S initiative.” Along
with, “T2S could be unfit for to make use
of the expected volume of segregated
accounts.”
In a ECB report released in Decem-
ber 2018, Eric de Gay de Nexon, head
of strategy, market infrastructures and
regulation, Societe Generale Securities
Services, commented in the report: “Real
cross-CSD settlements remain marginal,
volumes are below initial assumptions
and total costs have not decreased as an-
ticipated. As for the expansion of service
offering, that is still seen as evolving.” The
opinions of de Gay de Nexon were one of
the only candid answers in an otherwise
obvious T2S marketing ploy containing
the views of multiple stakeholders.
What his comments point to are that
while many of the desired outcomes have
not been realised, this is not to say they
won’t be in the future. There is still room
for these benefits to come to fruition, par-
ticularly around collateral management
and corporate actions.
Collateral opportunities
Moving forward, for example, the ECB is
planning to integrate T2S with the TAR-
GET2 cash payments platform for the
Eurosystem and to harmonise collateral
management by launching the Eurosys-
tem Collateral Management System
(ECMS) in 2022, which will harmonise
collateral frameworks for central banks.
For the former, T2S could allow banks
to pool their assets and securities across
markets on a single venue for settlement.
These advantages include reduced collat-
eral buffers and optimisation tools.
According to a white paper published by
Deutsche Bank in March 2017, collateral
and liquidity movements are of ‘para-
mount importance’, due to collateral
management becoming more streamlined,
as well as the need for collateral to meet
a broader range of compliance require-
ments.
In a post-T2S environment, the paper
suggested focus should also be on reduc-
ing pressure on high quality liquid assets
(HQLA). Mobilising domestic cash assets
and optimising cash and collateral across
markets through a single view of asset
pools has been identified as a possible
solution to reduce pressure on HQLA.
Both the European Central Bank (ECB)
and international central securities de-
positories (ICSDs) have looked at ways of
overcoming these hurdles and improving
collateral flows.
The ECMS initiative will have a signif-
icant impact on collateral flows within
T2S as central banks have seen their role
within the collateral management process
increase as a result of certain asset pur-
chasing programmes and other financing
procedures to banks.
“The collateral management aspect - es-
pecially for intra-bank collateral manage-
ment - will be developed in T2S, and if you
look at that in conjuncture of T2 and T2S
and introducing ISO 20022 for standards
for settlement and collateral messages, you
see there is quite a significant harmonisa-
tion agenda,” says Casteleyn.
Spring 2019
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