28 July 2011

Interview with Hugo Frey Jensen, Governor of Danmarks Nationalbank

1. Danmarks Nationalbank has been positive about T2S since the idea was launched in 2006. As early as 2009 DNB indicated its interest in settling Danish kroner as well as euro in T2S. What were the main reasons for your early interest?

Today the cost of cross-border settlement is out of proportion to domestic settlement, which is hindering the efficient integration of the European capital markets. The Danish market has therefore been positive about T2S since the beginning and supports its aim to establish a trans-European securities settlement system in which cross-border transactions can be effected just as efficiently as domestic transactions.

Against this background, VP Securities, as a Danish user-owned and governed central securities depository, has announced its intention to participate in T2S in both euro and kroner. Danmarks Nationalbank has likewise committed itself to making liquidity in kroner available for settlement in T2S.

2. How will T2S benefit Denmark and how will Denmark benefit T2S?

Danmarks Nationalbank has likewise committed itself to making liquidity in kroner available for settlement in T2S.

Cheaper cross-border settlement would benefit both Danish investors and issuers, especially of bonds, including mortgage bonds. The bond market, which accounts for the largest percentage share of the Danish securities market, is large, even by international standards. The total issue of bonds at the end of 2010 amounted to a market value of DKK 4,049 billion (€543 billion) and turnover for 2010 amounted to DKK 35,438 billion (€4,757 billion).

A better distribution channel to investors in Europe will benefit issuers of bonds and the market as a whole, and the inclusion of a market of that size will benefit T2S.

3. What would be the disadvantages for countries like Danmark should their national currency not be settled in T2S?

T2S will be the benchmark for securities settlement, issuance practice and corporate actions. The disadvantages for the Danish market were it not to join T2S with the Danish krone could be that the existing barriers to efficient cross-border clearing and settlement, known as the Giovannini barriers, would be maintained instead of removed.

We participate in TARGET2, which operates euro accounts for our Danish participants in TARGET2-Danmark. Thus, we are fully comfortable with outsourcing Danish kroner to T2S, operated by our colleagues in the 4CB

4. What do you view as the main criteria for evaluating the cur-rency participation agreement?

Like every other agreement, the currency participation agreement should correctly and fairly describe the rights and obligations between us as central banks. The agreement has to ensure fair governance for the participating non-euro area countries.

5. T2S governance has raised some debate regarding the outsourcing of national currencies in a platform run by the Eurosystem. What is you view on this matter?

Danmarks Nationalbank has outsourced the hosting and application development and maintenance of our RTGS system to an external IT service provider and our collateralisation system is operated by VP Securities. Moreover, we participate in TARGET2, which operates euro accounts for our Danish participants in TARGET2-Danmark. Thus, we are fully comfortable with outsourcing Danish kroner to T2S, operated by our colleagues in the 4CB.