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Harmonisation is the Holy Grail of the post-trade industry. Everybody speaks of it, but it remains evasive, at least at the European level.
From day one of the T2S project, the pursuit of harmonisation in securities settlement across T2S-relevant markets has been central to our activities. Harmonisation counts because the European Commission and the Governing Council of the ECB share the same political agenda in support of the development of a single financial market in Europe. Harmonisation counts because market participants in the post-trade industry recognise that their involvement in the T2S vision is constrained by national differences. In their words, “complexity cannot be automated” and the benefits of a European settlement engine are liable to be sub-optimal in the absence of harmonisation.
Harmonisation counts for one additional and functional reason, which is that certain aspects of post-trade harmonisation are indispensable to the successful launch and operation of the T2S engine. This is a core asset in the T2S harmonisation efforts. Among other things, the single timetable for all connected markets, the single settlement process for all assets and the adoption of a single, state-of-the-art communication protocol are all taken for granted in T2S. Still, these same areas today provide friction and are considered fundamental barriers to CSD interoperability and market integration.
The T2S specification documents (the User Requirements Document (URD) and the General Functional Specifications (GFS) already include these harmonisation elements, and these will, in fact, be applicable to all T2S-relevant CSDs, as well as having an indirect bearing on their respective markets, once T2S goes live. Admittedly, the delivered T2S harmonisation will be more relevant for the markets joining T2S rather than those who do not.
In addition to these core harmonisation elements currently under implementation in the T2S development phase, the T2S Advisory Group (AG) institutions and the ECB T2S Team are investing considerable resources in a number of more specialised harmonisation activities. A non-exhaustive list includes the work on the T2S ISO messages and matching fields, the corporate action standards on settlement flows, the technical national barriers to smooth cross-CSD settlement and the seminal work in agreeing on a single settlement finality rule to be reflected in the CSDs’ regulations. The T2S community has already agreed, or is in the process of defining, standards that the post-trade stakeholders have been discussing for years. Of course, a sound starting point at T2S harmonisation forums is always the expertise of the market participants and infrastructures which are active in the European and global markets.
As we progress further with the development of the T2S project, market participants and infrastructures are setting out their T2S adaptation plans in greater detail. This has prompted discussions in the AG regarding the optimal usage of the T2S project as an important catalyst for further post-trade harmonisation in Europe.
In its last meeting (7-8 September 2010) the AG was updated on the status of all current T2S harmonisation activities, forums and deliverables (see overview below). In the open discussion that followed, various opinions were expressed as regards the best way to enhance and potentially increase the current harmonisation efforts in the T2S project.
Overview of current T2S harmonisation activities:
The ECB T2S Team is currently considering these views, in coordination with the relevant stakeholders. It will present to the next AG meeting (6-7 December 2010) a proposal aiming at structuring any potential further T2S harmonisation activities along clear priority lines, agreeing on implementation deadlines and identifying responsible actors. In parallel, the ECB T2S Team is participating as a full member in the intensive work currently under way in the Expert Group on Market Infrastructures (EGMI), which is the main harmonisation forum in Europe and the successor to the CESAME2. The Team’s aim in doing so is twofold. First, we want to ensure that the T2S perspective is taken into account when the authorities and industry representatives discuss the future of the European post-trade environment, and second, we want to facilitate communication between the AG’s T2S community and the harmonisation policy authorities. The current Commission initiative on market infrastructures legislation is a typical example of this work. For further developments on the T2S harmonisation efforts, please visit our web pages dedicated to harmonisation.
2011 will be a busy year for the T2S project, especially for its T2S harmonisation efforts, as it will be the year in which a clear framework is defined, setting out the path to the Holy Grail.
