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Behind T2S lies an extensive amount of technical documentation, developed by the 4CB in cooperation with the ECB’s T2S team. One of the key milestones will be reached by mid-November, namely the finalisation of the General Functional Specifications. The T2S Programme Board has acknowledged the intensive work done by the teams to finalise this document following the market consultation in spring 2009. Work has already commenced on the production of the first version of the next key technical document: the User Detailed Functional Specifications.
During the summer, the ECB and the 4CB (made up of the Deutsche Bundesbank, Banco de España, Banque de France and Banca d’Italia) consolidated their project plans to create a single programme plan covering all of the major activities to be completed. The plan confirms the T2S go-live date as June 2013. In the Insight section of this issue of T2S OnLine, a detailed article provides information about the T2S programme plan.
One of the main objectives of the ECB’s T2S team is to ensure that market stakeholders are adequately informed about the latest developments. To enhance communication with the market, the T2S homepage has been re-designed and enriched. One of the new features is a “spotlight” section where points of interest are added on a continuous basis in order to keep readers informed about the project. In addition, it has become easier to find documents and information by making use of the search function (powered by Google) and the filter-as-you-type function, which are available on the T2S homepage under “Search” and “Events”. The search function allows you to search only the T2S pages, i.e. separately from the rest of the ECB’s website. The “Events” box provides an overview of all upcoming and past activities related to the T2S programme, such as meetings, workshops, speeches, Governing Council decisions and market consultations. The T2S pages will be updated on an ongoing basis to ensure that readers are kept fully informed about the latest developments.
During September we were pleased to receive confirmation from VPS (the Norwegian CSD) and Norges Bank that they intend to join T2S not only for settlement in euro but also for settlement in Norwegian krone. VPS intends to sign the Memorandum of Understanding with the Eurosystem and join the other 27 CSDs that already did so in July 2009. Thus, a total of five currencies are expected to be settled in T2S – the euro, Danish krone, Lithuanian litas, Swedish krona and Norwegian krone.
T2S is built on the principle of full cost recovery and one of the main objectives of the T2S Programme Board is consequently to keep costs as low as possible. In this regard, a task force has been set up to assess the total T2S development and running costs. The aim is to explore every possibility for reducing costs in order to ensure attractive pricing for T2S participants.
The debate on T2S pricing has progressed following the outcome of several pricing workshops and discussions held by the T2S Advisory Group. Three options on volume discounts have been discussed: (i) no discounts; (ii) discounts at CSD level; and (iii) discounts calculated at user level. The discussions have revealed that the arguments in favour of the first solution were convincing and that the majority of market participants opted for the “no volume discount” solution. This solution has been endorsed by the Governing Council of the ECB.
Following the signature of the Memorandum of Understanding by the CSDs, work has begun on preparing the Framework Agreement. The Framework Agreement will be the legally binding arrangement between the CSDs and the Eurosystem covering the development and operational phases of T2S. The Framework Agreement is expected to be finalised and signed by the CSDs by the end of the second quarter of 2010. Achieving such a major milestone will require a good cooperative spirit between all parties involved.
In October 2009 the Governing Council clarified its policy on the nature of outsourcing in T2S. Though it is acknowledged that the use of T2S services involves an important element of outsourcing, it is stressed that T2S goes beyond a conventional IT service provider, given that the owner and operator of the system will be the Eurosystem and that, by providing for real-time delivery-versus-payment settlement of securities transactions in central bank money, T2S pursues the overarching objective of facilitating further European integration in clearing and settlement through enhanced competition among market participants.
The draft version of the ECB Guideline has been prepared. The Guideline lays down the rules on the governance of the T2S programme. It also defines the respective roles and responsibilities of the T2S Programme Board and the 4CB and the relations between them during the specification and development phase. The main decisions to be taken by the Governing Council in relation to T2S are also specified. The Guideline will be complemented by the Level2/Level3 agreement, with 4CB supplying additional operational and technical details. The final Guideline will be presented to the Governing Council together with the Level 2/Level 3 Agreement in January 2010.
The establishment of the T2S Programme Board in spring 2009 finalised the organisational structure for the internal governance of the T2S project. External governance, however, is just as important for the success of the project. The Advisory Group has served as an important, albeit the only element of external governance until now. With the signing of the Memorandum of Understanding by the CSDs, a new forum for discussing the CSDs’ special needs and requirements is needed. The Governing Council has thus decided to set up a CSD contact group composed of the Programme Board members and members of the CSDs (CEOs or members of their governing bodies). The contact group’s main immediate task will be to prepare the draft Framework Agreement.
The Advisory Group has continued its work on harmonisation in the field of securities settlement and has finalised its standards for the processing of corporate actions on unsettled transactions (i.e. flow) in T2S. These standards are addressed to all CSDs, central clearing counterparties and users in T2S. The adoption of these standards will increase the efficiency of and reduce risks relating to the processing of corporate actions on unsettled tranactions, in particular for cross-border transactions, which are expected to increase significantly with the introduction of T2S. The Advisory Group’s proposals for the harmonisation of the flow of corporate actions will also be shared with the European Commission’s CESAME2 Group for their consideration.
The Advisory Group is also addressing opportunities for potential harmonisation in the context of T2S, such as auto-collateralisation and fails management, and will likely conclude this work in 2010. The Advisory Group is also collaborating with CESAME2 in a wider context and has, inter alia, initiated an investigation into the harmonisation of settlement cycles. A report on this issue is expected by October 2009, which will provide an analysis of the impact of harmonising settlement cycles in Europe to either T+2 or T+3.
