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The T2S project achieved a major milestone in November. After more than two years of negotiations, the Framework Agreement – which is a comprehensive contract between the Eurosystem and the CSDs that will participate in T2S – has been approved by the Governing Council of the ECB. The Framework Agreement is an extremely detailed 700-page legal document which covers all aspects of the project, including the parties’ rights and obligations, the governance structure, testing and migration, liability and termination, service levels and the project plan. The European Securities and Markets Authority is currently carrying out a final review of the whole package of documentation to ensure that there are no regulatory obstacles to CSDs signing the agreement. The boards of CSDs have been invited to sign the agreement by April 2012. Those that need more time to complete their feasibility studies have until June 2012. In the usual spirit of transparency within the T2S project, the agreement will be published on the ECB’s website.
The Framework Agreement – which is a comprehensive contract between the Eurosystem and the CSDs that will participate in T2S – has been approved by the Governing Council of the ECB
In order to encourage CSDs to sign the Framework Agreement in a timely way and to migrate as early as possible to T2S, the Governing Council has also decided to offer an “early bird” incentive package. This is justified on a number of grounds. Those who migrate early will encounter the “teething problems” that new infrastructures always experience at the beginning of their life. They will also need to support the testing activities of CSDs that migrate later. For more details, please see the T2S project update.
I am happy to report that great strides have also been made on the connectivity front. You probably remember that we had to refocus our strategy in this area about a year ago, and this explains, in part, why we had to delay the start date of T2S (spotlight). I have been informed that the selection panel has almost completed its task and that the winners of the tender for the value-added networks are likely to be announced shortly, and I am pleased to inform you that the Governing Council of the ECB has taken the final decision concerning the dedicated links (please see the T2S project update).
In the last few months the Bank of England and the Swiss National Bank have informed the Eurosystem that they will not participate in T2S with their national currencies – at least at the beginning. We, of course, will keep the door open to them. But there has been some speculation that this will leave T2S unable to keep its commitment to the price of 15 cent per DvP instruction. I want to quash such speculation. The pricing model has been calibrated on the basis of conservative assumptions. The 15 cent commitment only requires 20% of volumes to be made up of non-euro currencies, which can still be achieved without the participation of the Swiss franc and the pound sterling. With the participation of these two currencies, we would have been able to charge close to 10 cent to market participants.
The 15 cent commitment only requires 20% of volumes to be made up of non-euro currencies, which can still be achieved without the participation of the Swiss franc and the pound sterling
I would also like to emphasise the fact that even if a currency does not participate in T2S, CSDs can still participate and cash settlement will take place either in euro in T2S or in a different currency outside of T2S. Furthermore, as I explained in a recent speech, even if a CSD and a currency do not participate in T2S, it does not mean that the markets will be protected from competition. T2S, together with the new legislative proposals from the European Commission, will foster the integration of the European securities markets, even if some CSDs and/or some central banks decide not to participate. In particular, European legislation and market pressure will make it possible to settle all European blue-chip securities transactions on a single platform, namely T2S, in any currency participating in T2S, because market liquidity will concentrate there. I accept that this vision might not be shared by everyone and I encourage both those who agree and those who disagree to share their views with us; such discussions will be useful for CSDs when they come to consider signing the Framework Agreement.
You probably understand why there is little appetite to review the 15 cent fee, even if we were able to do so in accordance with the pricing conditions attached to the Framework Agreement. We are convinced that T2S will have the potential to attract more than just the business transferred by the CSDs and central banks that choose to participate.
Lastly, I would like to take this opportunity to mention the very successful conference “Securities settlement in 2020: T2S and beyond” which took place in Frankfurt on 4-5 October. There were some extremely interesting speeches and panel discussions about the impact of T2S on the post-trade environment in Europe and about the evolution of the securities settlement business elsewhere in the world. The conversations between participants attending the conference were equally interesting.
During the conference there was clear recognition that T2S is no longer just a proposal for discussion, but that it is a reality. Vítor Constâncio, the ECB’s Vice President, and, Peter Praet, a member of the Executive Board, both confirmed that the Governing Council is firmly committed to T2S. T2S is seen as a key component of the Single Market project – and the furthering of the Single Market is crucial for the competitiveness of the euro area and its resilience to shocks.
T2S is seen as a key component of the Single Market project – and the furthering of the Single Market is crucial for the competitiveness of the euro area and its resilience to shocks.
The new competitive environment for CSDs was widely discussed at the conference. Parallels were drawn between the impact of T2S on settlement and the impact of MiFID I on trading. MiFID broke up the monopoly of national stock exchanges, leading to the establishment of new trading venues. Likewise, T2S will change the securities settlement landscape. The CEO of a major European CSD remarked that “The issue is not whether we like T2S or not. The issue is that there is no future for a euro area CSD outside of T2S”.
The CEO of a major European CSD remarked that “The issue is not whether we like T2S or not. The issue is that there is no future for a euro area CSD outside of T2S”.
You can find more information on the conference proceedings on the T2S website.
I will now introduce the special features in this issue. Besides the regular status update, we have an article on the future T2S governance arrangements by T2S team member Stephan Sauer. We also have an article by Alberto Giovannini about the impact of the crisis and EU regulation on market infrastructures. T2S Programme Manager Marc Bayle then provides a comprehensive overview of where we stand with the project. Lastly, we introduce a new member of the T2S Programme Board, Kristian Kjeldsen from Danmarks Nationalbank.
I hope you enjoy this issue.
