29 July 2010

User connectivity

An important topic on the T2S programme agenda for the coming months is user connectivity. As shown in the diagram below, CSDs, non-euro area central banks and directly connected parties will need to interact with the T2S platform by sending and receiving messages via a network.

The question is, who will provide the services for channelling these messages between T2S and its users? The Eurosystem does not have its own network service and does not intend to build one. For one thing, this would be outside the lean scope of the T2S programme. It has thus been agreed that a maximum of three network providers will be chosen, which will be licensed to offer services to T2S users. Having multiple network providers for T2S will mean that users can benefit from competition and choice. Competition is very important to guarantee that the costs of user connectivity are kept as low as possible, not only at the start of operations, but also over time. These additional connectivity costs are of particular concern for the CSDs, which will now be accessing the remote T2S settlement engine from their reshaped infrastructure, as opposed to it being part of their internal IT system as was the case before.

The selection criteria

In order to select the network providers, a number of business and technical criteria have been developed. These have already been discussed several times with the market – in the T2S Advisory Group and the CSD Contact Group, as well as during the T2S information sessions – and the feedback received is being given careful consideration. The business criteria are intended to cover issues such as financial strength, liability, data protection policy, technology risk management and pricing, while the technical criteria cover security, reliability, service performance, service desk support and disaster recovery.

In order not to unnecessarily limit the number of companies that can make an initial offer and to avoid undue “lock-in” effects, the set of value-added services that will be required (on top of “pure” connectivity) has been kept relativity small. To ensure the availability of cost-effective connectivity solutions for the wide variety of T2S users in terms of volume requirements, it has also been agreed that each network provider will have to offer a traffic-based pricing scheme, as well as a bandwidth-based pricing scheme.

If more than three network providers fulfil all of the business and technical criteria, the final selection will be made on the basis of which companies provide the required services at the lowest cost.

The selection process

The selection process will start very soon and will be managed by Banca d’Italia on behalf of the Eurosystem and on the basis of the guidance given by the T2S Programme Board and advice from the Eurosystem Procurement Coordination Office. The process will be entirely open, objective and transparent. It is currently planned that the process will be formally initiated before the end of the year with the publication of the official tender notice, together with all relevant documentation. The network providers will have several months to submit their offers, after which the Eurosystem will make its selection. Assuming the selection process runs as expected, it is foreseen that the licenses will be awarded by mid-2011. Work will then begin, together with the network providers, to check in detail that they fulfil all of the requirements, before allowing them to sign contracts with the T2S users.

There is still much challenging work ahead, but we are well on our way to achieving our objective of having a low-cost and low-risk connectivity solution for T2S.