Press Room

TARGET2-Securities (T2S) is a major project launched by the Eurosystem to stimulate the integration of the securities post-trading infrastructure in Europe. T2S will provide a single harmonised venue where almost all heavily traded securities circulating in Europe can be settled against euro (and potentially other European currencies) with standardised communication protocols and harmonised market practices. Today, the settlement of securities transactions in Europe takes place on multiple platforms and therefore remains fragmented along national borders; this is why settlement across countries is very complicated and costly. In the new scenario introduced by T2S, conversely, it will make no difference – in technical, risk and cost terms – whether the end-investor and the security will be located in the same country or not. A single set of rules, standards and tariffs will be applied to all transactions, dramatically reducing the complexity of the current market infrastructure.

T2S will be a service offered by the Eurosystem to the European central securities depositories (CSDs), which are now responsible for the settlement of securities transactions in the countries where they are located. The CSDs that decide to join T2S will move their securities accounts to T2S for settlement purposes; to do so, they will need to establish a contractual relation with the Eurosystem and a technical connection to the platform.

The T2S platform will accommodate the securities accounts held by the CSDs on behalf of their customers as well as the dedicated cash accounts kept by national central banks for their participants. This so-called “integrated model” will allow settlement in delivery-versus-payment mode, i.e. the real-time, safe and final settlement of all transactions. Additionally, by settling in central bank money and offering a number of highly advanced facilities (such as for instance auto-collateralisation, continuous optimisation, etc.), T2S will eliminate the financial exposure in cross-CSD settlement and will thus foster financial stability in Europe.

T2S will have a multicurrency dimension. It will extend beyond the euro area, enabling the interested non-euro area national central banks to allow settlement in their local currencies to take place in T2S.

The primary and most evident advantage brought about by T2S is that it will cut cross-border settlement costs in Europe to one of the lowest levels in the world, thus benefiting both CSDs and banks. Settling across European countries today is many times more expensive than settling within one country, because the process is fragmented over several platforms and requires the contribution of a chain of intermediaries. T2S aims at substantially reducing the current cross-border settlement fees by exploiting the economies of scale deriving from the concentration of settlement on a single platform.

However, the benefits of T2S will not be limited to bringing down the cross-border settlement fees. The introduction of T2S is also anticipated to lead to a more general reduction in the total costs for settlement through the rationalisation of systems on the part of both CSDs and banks. CSDs will be offered a state-of-the-art and highly robust settlement engine that will enable them to offer efficient settlement services in central bank money to their customers, whilst concentrating on developing their other services. Banks will in turn be able to centralise their back-office operations and also to optimise their liquidity and collateral management. Further efficiency gains will emerge as a result of the market practices harmonisation triggered by T2S: there will be standardised communication protocols, a single settlement schedule and calendar, a single set of matching standards, and common standards for corporate actions processing.

By eliminating barriers to settlement across Europe, T2S will open up the market for competition and create new business opportunities for both CSDs and end users. CSDs will be able to access all participating markets and compete with each other. Banks will be able to centralise their settlement activity, and to potentially access a comprehensive pool of European securities through a single CSD. The savings on settlement costs are expected to be passed on to end investors through increased competition between intermediaries.

From a broader perspective, T2S will be a driver for economic growth in general. By making it easier and less costly to access cross-border securities, investors will be able to hold, and benefit from, more diversified portfolios, and issuers will benefit from a more diversified investor base. Securities markets will become more liquid and more attractive. Therefore, the cost of capital will decrease for issuers. They will be able to invest more and thus generate more economic growth.

Finally, T2S will have a positive impact on financial stability, drastically reducing risks and allowing a better management of liquidity by banks. This is even more important in view of the recent financial crisis, which has highlighted the crucial role that market infrastructures will continue to play in preserving the stability, soundness and safety of the global system in the future.

T2S is owned and operated by the Eurosystem, with strategic decisions being made by the Governing Council of the ECB. The day-to-day conduct of the project falls under the responsibility of the T2S Programme Board, a management body appointed by the Governing Council and supported by the T2S team of the ECB. The Governing Council has assigned the development and future operation of the platform to four national central banks of the Eurosystem, i.e. Deutsche Bundesbank, Banque de France, Banca d’Italia and Banco de España (so-called 4CB).

T2S is built by the Eurosystem to the benefit of all users and of Europe in general. All stakeholders have therefore been involved in the project’s governance from the very inception of the initiative back in 2006, and the Eurosystem is strongly committed to continuing this transparent and consensual approach in future. The main forum where all members of the T2S community are given a say in how the platform is developed and operated is the T2S Advisory Group, comprising representatives of national central banks, CSDs and future end users of the T2S services.

Furthermore, the foundations of the platform’s design have been laid by market participants themselves through the elaboration of the User Requirements Document (URD), which describes all the T2S features as required by CSDs and banks. The URD embodies the concept of T2S and provides the basis for the functional and technical development of the platform.

T2S will perform settlement of securities transactions and its primary users will be the CSDs. The CSDs will move their securities accounts to T2S for settlement purposes. However, they will remain the legal owners of these accounts and be responsible for customer relations. CSDs will continue to offer their services to banks and will be responsible for all business and legal relations with them. So far, 30 European CSDs have signed a Memorandum of Understanding with the Eurosystem signalling their interest in joining T2S. Following the finalisation of the Framework Agreement (FA) in November 2011, CSDs will now carry out their feasibility assessments and decide whether to join T2S by no later than June 2012. The FA [8.69 MB] sets out the contractual rights and obligations of the Eurosystem and each contracting CSD, and covers the development and operation of T2S. It regulates the scope of the controlling powers of the CSDs relating to the outsourcing of their IT functions to the Eurosystem, as well as issues such as liability, protection of intellectual property rights and confidentiality.

As T2S will offer real-time settlement in central bank money, the participating national central banks will have to hold dedicated cash accounts in T2S for settlement purposes. All euro area central banks will join T2S, and a number of central banks from outside the euro area are also considering using T2S for settling securities transactions in their national currencies. The negotiations with non-euro NCBs are currently ongoing with a view to deliver the Currency Participation Agreement (CPA) in early 2012. The CPA will govern the relationship between the Eurosystem and non-euro area central banks that wish to make their currency available in T2S.

In October 2014 the platform is scheduled for testing with the participating CSDs. After completion of tests, T2S will become operational in June 2015. Following consultation with the market, it has been decided that the connection to T2S will be arranged by groups of CSDs, in principle over three waves, to ensure the gradualness and safety of the “migration” process. According to the current Eurosystem plan all CSDs will be connected to T2S by January 2017.

The definition of the platform's functional specifications, started in mid-2008, was completed in October 2011 with the publication of the User Detailed Functional Specifications version 1.2. [19.8 MB] The functional design of the T2S platform is based on the User Requirements, defined in close cooperation with market participants and approved by the Governing Council of the ECB in February 2010.

In parallel, the 4CB (i.e. Deutsche Bundesbank, Banque de France, Banca d’Italia and Banco de España) have started developing the T2S software. Testing with the market will then start in October 2014.

The finalisation and signature of the legally binding contracts between the Eurosystem and CSDs/NCBs wishing to participate in T2S constitute major milestones of the T2S project.

• The Framework Agreement [8.69 MB] was finalised in November 2011 after 2 years of negotiations with CSDs and offered to CSDs for signing by April 2012 following their feasibility assessments and no later than June 2012 if additional time is required. The Governing Council has decided to offer financial incentives to those CSDs who decide in favour of an early contractual commitment and early migration to T2S.
• The Currency Participation Agreement between the non-euro area NCBs and the Eurosystem is foreseen to be submitted to the Governing Council in January/February 2012 for signing by March/April 2012.

One of the primary aims of introducing T2S is to cut cross-border settlement fees in Europe. Due to the current market fragmentation, settling securities transactions across national borders still costs much more than settling transactions within the same country. With T2S, cross-border and domestic transactions will be processed in the same way and therefore at the same price.

The Eurosystem is committed to recovering the full costs of creating and running the T2S platform through the fees charged to the connected CSDs. As the project is built on a non-profit basis, the fees will only aim at full cost recovery, more precisely over an amortisation period of seven years of full operation (and one year of migration).

The T2S settlement fees will be the same for all participating CSDs and transparent to the market. On 18 November 2010, the Governing Council of the ECB decided to set the delivery-versus-payment (DvP) settlement price for T2S at 15 cent per instruction. This price will be fixed from June 2015, when T2S will go live, to end-2018, provided that certain conditions are fulfilled. more

The decision of the Governing Council is based on a pricing proposal of the T2S Programme Board, which in turn was the result of an extensive dialogue with all market participants. In particular, the proposal has been repeatedly discussed in the T2S Advisory Group, where all stakeholder categories are represented (CSDs, banks and national central banks).

This pricing policy is consistent with the principle of full cost recovery, while also coinciding with the objective that T2S has always pursued, i.e. to achieve a settlement fee that is lower than any current domestic fee, even if the cost of CSDs are added to the T2S fee. Moreover, the pricing proposal is based on conservative volume assumptions and the T2S Programme Board has therefore emphasised its objective to further lower settlement fees after 2018.

Pricing section