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Marc Bayle,
T2S project manager
Dear stakeholders,
A major milestone was achieved this month with the signing of T2S Memorandum of Understanding between the Eurosystem and Central Securities Depositories (CSDs) on 16 July. Press release In the end, an impressive number of CSDs – 27 in total located in 25 countries – signed the agreement. This included not only all CSDs that exist in the euro area, but also seven CSDs located in EU countries outside the euro area – Denmark, Estonia, Latvia, Lithuania, Romania, Sweden, UK – and two CSDs located in countries outside the EU – Iceland and Switzerland. The CSDs of Denmark, Lithuania and Sweden – with support of their central bank and the market – also signed up for settlement in T2S in their domestic currency as well as in euro.
Memorandum of understandingThe signing of the Memorandum of Understanding with the CSDs is important for two main reasons. First, it shows the strong support for T2S amongst market participants in a large number of countries across the EU and even outside the EU, and their confidence that T2S will deliver major benefits for the European financial industry in terms of lower settlement costs, the elimination barriers to cross-border trading and investment, and harmonisation of market practices across Europe. The larger the number of CSDs that participate, the greater the assurance that T2S will achieve the critical mass of transaction volume necessary to secure the desired cost reductions. Second, the Memorandum of Understanding is a new step towards the legally binding “framework agreement” which will commit CSDs to using T2S. In the coming months, the Eurosystem and the CSDs need to intensify their bilateral discussions both at a strategic and technical level in order to prepare for the building of the T2S settlement platform.
The signing ceremony kicked off with a press conference hosted by Mrs Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB, Jeffrey Tessler, CEO of Clearstream, Pierre Francotte, CEO of Euroclear Group, Paolo Cittadini, General Manager of Monte Titoli, José Massa, Chairman of Iberclear and Jean-Michel Godeffroy, the chairman of the T2S Programme Board. Mrs Tumpel-Gugerell praised all the work that had been done up to this stage, and then gave an update on the status of the project and what challenges lie ahead. She concluded, “Much has been achieved, much remains to be done. With the Memorandum of Understanding of today – a year after we have started – we are on track to meet the ultimate deadline of having T2S operational by 2013.” Speech
The representatives from the CSDs then made their own statements, also praising the work that had been done so far, and confirming their support and their customers’ support for the project. Admittedly, there are still a few open issues, for example on the contractual arrangements with CSDs, the achievement of critical mass for transactions and the resulting pricing, but all were confident that these could be resolved. It was mentioned that T2S, which only a few years ago was not more than a dream, was now firmly on it way to becoming a reality, thus creating the basis for a domestic market infrastructure for Europe which is what the CSD’s customers want. Finally, Jean-Michel Godeffroy mentioned two other aspects: first, the recent decision to strengthen the internal governance of the T2S Programme to ensure that the Eurosystem delivers on time, in budget and according to market needs; second, the choice to make T2S a multi-currency settlement platform, not just for the euro area but for Europe as a whole.
There then followed a number of interesting questions from journalists about how T2S would affect competition in the post-trading environment and the impact on the revenues of CSDs. There was particular interest in how much T2S would reduce the costs of settlement. There was a general consensus that T2S would increase competition, and potentially affect CSD’s revenues to varying degrees depending on their business model. But it was mentioned that a recently published report showed that settlements costs are still only a very small fraction of the cost in the whole value chain of trading and post-trading services. Journalist also asked whether the Bank of England would agree to provide for sterling settlement in T2S. It confirmed that some preliminary discussions are taken place with the Bank of England, in particular on the topic of governance of the T2S platform.
Shortly after the press conference, the official signing ceremony began. Jean-Claude Trichet, ECB President, started the ceremony adressing the CSDs CEOs and the members of the ECB Governing Council in which he highlighted the benefits of T2S for the European financial industry Speech. He also praised the effort and support of all those who have been involved, in particular the CSDs. ‘This support,’ he said, ‘has helped us to define a product which is fully in line with market needs. I am aware that it translated through all levels of the institutions – political as well as operational levels – and it has generated a momentum which makes me confident that we will also achieve the future milestones of the T2S project in good times.’ Following the President’s speech, the work of signing the agreement then began in earnest by the central bank governors and the CEOs of the CSDs.
