29 November 2010

Jean-Michel Godeffroy, chairman of the T2S Programme Board

The Governing Council has just confirmed the pricing proposal that emerged from the T2S Programme Board’s discussions with the market. Until the end of 2018, T2S will guarantee a price of 15 cent for the settlement of a delivery-versus-payment (DvP) instruction on the conditions outlined in the article prepared by Markus Mayers for this issue of T2S OnLine. In the longer-term, we are confident that prices will decrease further as a result of, first, the increase in trading volumes due to the dynamic effects of a harmonised and competitive post-trading market in Europe and, second, the additional participation in T2S of new markets that might join after the first wave of migration.

Long-term planning is essential if we are to achieve the highest level of cost-efficiency and maximise the benefits that T2S will bring.

We are, of course, aware that the 15 cent that T2S will charge is just one component of the total end-to-end cost of settlement. Now that the uncertainty about the T2S price has been removed, attention is shifting towards the other components, in particular the costs that market infrastructures will have to incur in order to adapt to T2S and how these adaptation costs will be passed on to market participants.

The baseline settlement price of 15 cent already provides a great deal of scope for central securities depositories (CSDs) to offer their domestic clients an end-price that is equal to, or even less than, the current price. To achieve this, CSDs and their market participants need to start working together in defining their adaptation strategy. Long-term planning is essential if we are to achieve the highest level of cost-efficiency and maximise the benefits that T2S will bring.

A further crucial way by which to ensure that settlement costs are kept as low as possible is to seek out greater economies of scale; these can be achieved, principally, by maximising the participation of non-euro area countries with their national currency in T2S.

In any event, the fact that T2S will open the settlement market up to competition between different providers – including new and potentially low-cost entrants – means there will be a degree of pressure to keep prices for domestic clients as low as possible. As regards cross-border business, it was clear from the beginning that very significant price reductions could be achieved (up to 90% in most cases).

A further crucial way by which to ensure that settlement costs are kept as low as possible is to seek out greater economies of scale; these can be achieved, principally, by maximising the participation of non-euro area countries with their national currency in T2S. We therefore remain firmly committed to continuing our dialogue with all non-euro stakeholders, especially central banks, in order to reach an agreement.

It should be emphasised that T2S was, from the beginning, conceived as a veritable multi-currency system – on a technical, operational and political level.

In this respect, excellent progress has been made by the Task Force on the Currency Participation Agreement. This task force – which is composed of representatives from both euro area and non-euro area central banks and chaired by my colleague from the T2S Programme Board, Jochen Metzger – has been working on the contractual arrangements for the non-euro area central banks that are considering making their currency available in T2S. In particular, it has been discussing the governance arrangements, which are of critical importance.

It should be emphasised that T2S was, from the beginning, conceived as a veritable multi-currency system – on a technical, operational and political level. In terms of both day-to-day operational control and strategic decision-making, non-euro area central banks will have the same level of influence within T2S as the Eurosystem central banks. We have put in place some key safeguards to make certain that future decisions regarding T2S do not go against the interests of the non-euro area central banks. Ensuring that each currency has the same degree of influence is the only way in which such a multi-currency system can succeed; the system must carry such a guarantee if it is to be accepted by the independent central banks.

I therefore remain confident that we can reach an agreement on the Currency Participation Agreement with a large number of the central banks.

Last month I visited several non-euro area central banks and markets in order to explain and discuss our proposal on a bilateral basis. These meetings proved very helpful in building support for T2S. I therefore remain confident that we can reach an agreement on the Currency Participation Agreement with a large number of the central banks.

What surprised me during my recent trips was the importance that many banks assigned to harmonisation. Some of them went as far as to say that the savings to be made via T2S in the area of information systems were rather small in comparison with the economies they could make if T2S were to be accompanied by the right harmonisation measures. This echoes what was said at the meeting of the T2S Advisory Group in September. We are definitely willing to help in this field, albeit within the limits of our resources and while ensuring that we neither duplicate the efforts made by other groups nor lose sight of our main objective: keeping T2S on track for delivery on time. T2S offers both a deadline (September 2014) and a forum (the T2S Advisory Group). It goes without saying that our efforts will be co-ordinated with the European Commission. In this issue of T2S OnLine, Marc Bayle provides more information on the harmonisation activities scheduled for the coming weeks and months.

I would now like to draw your attention to the other articles in this issue of T2S OnLine that I have not yet mentioned. As usual, you will find a project update by Helmut Wacket. In addition, you will have the pleasure of reading exclusive interviews with Iwona Sroka and Adriana Tanasoiu (the CEOs from the CSDs of Poland and Romania respectively), in which they explain their strategies for T2S. This edition of the T2S OnLine closes with the introduction of the two new alternates on the T2S Programme Board.

I hope you enjoy this issue.