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T2S in 2011

The ultimate goal of the T2S project is to play a decisive part in making Europe a better place to invest. To achieve this goal, the project sets a series of general objectives and targets, which describe how T2S aims to improve the European post-trade landscape, by making it more secure and more efficient, i.e. more streamlined, more transparent and cheaper.

Alongside other initiatives on post-trading efficiency and stability conducted by European authorities and the financial industry, the Eurosystem, which is running the T2S project, is committed to delivering a system that successfully meets these objectives. Of course, the Eurosystem cannot achieve this on its own. We are relying on the efforts made by CSDs, central banks, banks and regulatory authorities to make it a reality.

So far we have worked hard, together with all T2S stakeholders, to ensure that T2S will deliver the wide range of benefits that have been promised. 2011 was a very important year for laying the cornerstones of the project. We have therefore decided to review the most significant activities and accomplishments of the year in a single document. Though not yet being a fully-fledged annual report, T2S in 2011 comprises an overview of the achievements in the most relevant areas of the T2S Programme and an annex recalling the objectives and benefits of T2S.

T2S by the numbers in 2011

  • 56 staff in the T2S Team at the ECB
  • 31 CSDs involved in working towards joining T2S
  • 17 central banks from the euro area involved in the preparations for T2S
  • 7 non-euro area central banks involved in the negotiations with the Eurosystem
  • 16 committees and working groups dedicated to T2S involving a total of 411 participants
  • 114 meetings of the before mentioned committees and working groups
  • 26 T2S National User Groups involving a total of 742 participants
  • 5 T2S Info Sessions open to all stakeholders and ad hoc information workshops
  • 19 workshops dedicated to a specific topic
  • 5 T2S technical documents published, with a total of around 10,000 pages including annexes
  • 3 T2S connectivity documents published, with a total of 407 pages
  • 60% of the T2S software already coded by the 4CB
  • 8 public consultations on T2S technical documentation and around 5000 comments received and analysed
  • 3 T2S legal documents finalised, with a total of 874 pages
  • 6 working groups dealing with T2S-related harmonisation activities
  • 17 harmonisation topics taken into consideration, covering a total of 29 harmonisation activities
  • 27 countries being monitored for harmonisation work
  • 295 attendees in the T2S conference "Securities Settlement in 2020: T2S and Beyond"
  • 22 external conferences featuring speakers from the T2S Programme Office

Legal documentation

2011 was a pivotal year as regards the finalisation of the main pillars of the legal construction of T2S.

On 20 April the Level2/Level3 Agreement was signed by the Governing Council of the ECB and the 4CB (i.e. the Deutsche Bundesbank, the Banque de France, the Banco de España and the Banca d’Italia). This contract defines the legal relationship between the Eurosystem and the 4CB, with the latter, as T2S providers, developing T2S and responsible for operating it in future on behalf of the Eurosystem.

On 22 July the Governing Council decided to set an autumn deadline for the finalisation of the Framework Agreement with the CSDs interested in T2S. The CSDs’ decision-making bodies were thus invited to examine closely the remaining open issues in order to reach a mutual understanding ahead of the final offer of the document for signature. The Framework Agreement is the contract clarifying the rights and obligations of the CSDs and the Eurosystem in relation to T2S, providing a solid legal basis for CSDs to adapt to T2S while safeguarding the Eurosystem’s investment in the project.

On 17 November the Framework Agreement (and the related annexes, referred to as Schedules) was endorsed by the Governing Council, and subsequently submitted by the President of the ECB, Mario Draghi, to all of the CSDs that had participated in the negotiations with the Eurosystem. CSDs were invited to sign by April 2012 or, for those which require additional time to complete their feasibility studies, by June 2012 at the latest. The finalisation of the Framework Agreement marks a key milestone in the T2S project, following more than two years of rigorous negotiations involving 31 CSDs across Europe.

On 17 November the Governing Council also decided on the detailed rules and procedures for implementing the eligibility criteria for CSDs to access T2S services (Decision ECB/2011/20).

Finally, in 2011 significant progress was made on the Currency Participation Agreement, the contract which defines the mutual rights and obligations of the Eurosystem and the non-euro area central banks that will allow settlement in their currencies to take place in T2S. Frequent meetings were held throughout 2011 with the T2S project managers at the interested non-euro area national central banks. Discussions continued into 2012 until the text was finally endorsed by the Governing Council on 23 February, and shortly thereafter offered for signature to the non-euro area central banks that had taken part in the negotiations.

In 2012 the legal work stream is expected to focus on the legal arrangements for the Dedicated Link solution for T2S connectivity; on the documentation establishing the T2S Board, i.e. the T2S governance body that will take over the management functions of the T2S Programme Board in Summer 2012; and on the legal arrangements concerning the interaction between T2S and RTGS systems, in particular TARGET2 – interaction which was already at the centre of a number of meetings with central banks held in 2011.

Technical documentation

Very good progress was also made in 2011 in the technical construction of T2S. The market was heavily involved in the work on the technical documentation, which was intense and fruitful, as well as fully transparent (all documents mentioned below are available on the T2S website).

On 28 February the Business Functionality for the T2S Graphical User Interface (GUI) was published. The document provides a list of business functions available in the user-to-application (U2A) mode (via the GUI) and a brief description covering the purpose and key features of these business functions. It forms the basis for the design and implementation of T2S GUI screens. This document was developed based on the feedback received during the six GUI usability workshops held in 2010 and the market was extensively involved throughout the process.

On 22 March version 1.0 of the User Detailed Functional Specifications (UDFS) was released for a two-month market consultation. The UDFS is a user-oriented document that illustrates the features of T2S from a business perspective, provides details about the application-to-application (A2A) dialogue between T2S actors and T2S, and gives a detailed description of the set of messages processed by T2S. As a result of the spring consultation, around 1,600 comments were analysed and addressed. This approach made it possible to produce a document of very high quality and was instrumental in reaching a common understanding among all relevant stakeholders as to how the T2S User Requirements had been implemented.

Consequently, version 1.2 of the UDFS was published on 31 October. This version is the stable basis for the start of the CSD/central bank feasibility assessments for adapting their IT systems and processes to T2S. Other directly connected T2S actors will be able to design and build the interface of their information systems with T2S based on this version of the UDFS.

Another market consultation was launched in June, on the Business Process Description (BPD). Version 1.0 was then released in November, taking into account the feedback received from the market. This document illustrates the end-to-end business processes involving CSDs, central banks and other technically directly connected parties, and describes their interaction with T2S. The BPD will assist the relevant stakeholders in their feasibility studies and adaptation analyses for T2S.

Alongside these documents, version 0.1 of the Data Migration Tool Specifications and Related Procedures was circulated to the CSDs on 31 October. This document outlines the process by which CSDs can utilise the tool for the migration of data into the T2S database. On the basis of this initial version the CSDs will be able to analyse their needs and provide feedback to the Eurosystem to aid development of the specifications.

Moreover, on 17 November a new version of the User Requirements Document (URD 5.01) was published. This version incorporated the 16 change requests approved by the T2S Advisory Group over the previous two years, as well as the updated version of the T2S General Principles. After consulting the market, the Eurosystem had reviewed the T2S General Principles in order to place a stronger emphasis on the multi-currency character of T2S and to provide assurance that all currencies in T2S will be treated on an equal basis.

Finally, the technical construction of T2S also proceeded well in 2011 from an application development perspective, with the 4CB having already completed 60% of the T2S programming and started internal testing.


The connectivity policy for T2S was reviewed by the Governing Council with its decision of 20 April (Decision ECB/2011/5). According to this decision, T2S actors will be able to connect to T2S via two mechanisms – either via a value-added network connection or via a dedicated link.

On the same occasion, the Governing Council also mandated the Banca d’Italia to conduct – on behalf of the Eurosystem – a tender in order to select the Value-Added Network Service Providers for T2S. The tender procedure was launched in July for the selection of (up to) two providers, and came to an end on 22 December, when the Banca d’Italia – advised by a selection panel consisting of five Eurosystem members – announced the definitive awarding of two Licence Agreements, one to SWIFT and the other to a consortium consisting of SIA and Colt. SWIFT and SIA/Colt were chosen as they were the two providers that fulfilled all the technical and business criteria required for T2S, offering the best prices.

T2S actors (central banks, CSDs, and their directly connected customers) who intend to connect to T2S via a value-added connection will select one of these two Network Service Providers (or both), negotiating with them the relevant terms and conditions, within the constraints set out in the Licence Agreements.

As regards the Dedicated Link connectivity solution, Version 0.1 of the Dedicated Links Connectivity Specifications was published on 31 October. This version of the specifications contains information about the technical protocol for communication with T2S using dedicated lines.

In addition, on 17 November the Governing Council decided that the Eurosystem would provide end-to-end connectivity services directly via CoreNet, the Eurosystem’s existing communication network. The details of the technical, legal and pricing framework are to be defined in 2012. Even if the value-added network connectivity and the dedicated line connectivity are different solutions from a technical viewpoint, they will be seen as alternative solutions by some market participants. In this respect, the Eurosystem is keen on avoiding any competitive distortion between the two solutions, in particular with regard to the definition of the technical and business requirements that will be imposed on CoreNet.

Compliance with T2S programme plan

An important change in the T2S Programme Plan was decided by the Governing Council at its meeting on 20 October, when a delay of nine months was agreed upon, postponing the T2S go-live date from the end of September 2014 to the end of June 2015. This review of the Programme Plan had been proposed by the T2S Programme Board taking the following into account:

  • the delivery of the T2S software for the Eurosystem Acceptance Testing environment would have a delay of three and a half months as a result of a number of changes to the T2S User Requirements requested by the market, and following the change in the strategy for T2S connectivity services;
  • testing should be strengthened by extending Eurosystem Acceptance Testing by three months and in parallel by offering CSDs of the first migration wave the possibility to participate in pilot testing;
  • a small buffer of two and a half months should be included in the time plan to provide for further essential requests for changes from the market.

Support of stakeholders’ preparations

Maintaining a constant dialogue with and providing support to all those who have a stake in T2S was also a work stream of primary importance in 2011.

Throughout 2011 the T2S Programme Office held numerous meetings with CSDs and non-euro area central banks, both bilaterally and multilaterally within the relevant working groups established by the T2S governance structure. The main objective of these meetings was to address all the issues which might have hampered the finalisation of the Framework Agreement and Currency Participation Agreement.

Meetings with CSDs were organised at both the project sponsor level (CEOs) through the CSD Contact Group, and at the project manager level through the Project Manager Sub-Group. The former group met eight times over 2011, whereas the latter had six regular meetings as well as a total of 26 dedicated workshops to address, for instance, topics relating to programme planning, pricing, governance, information security, user testing and migration.

Contacts with non-euro area national central banks mainly took place at the project manager level. More specifically, the Task Force on the Currency Participation Agreement held nine meetings and organised two workshops dedicated to functional and planning issues.

Finally, in 2011 the T2S Programme Office also involved the project managers from the Eurosystem central banks, who participated in two meetings to discuss the national adaptation to T2S.

In the last few months of 2011 discussions with CSDs and national central banks concentrated in particular on the clarification of technical details and on the analysis of issues related to the message flows as documented in the User Detailed Functional Specifications 1.2, published during autumn 2011.

In 2011 a number of CSDs publicly announced their intention to join T2S. Namely, Monte Titoli (the Italian CSD), part of the London Stock Exchange Group, and Depozitarul Central S.A. (the Romanian CSD), part of the Bucharest Stock Exchange Group, made official statements on 19 January regarding their plan to participate in the first T2S migration wave. This announcement followed the similar commitment already made by BOGS, the CSD for Greek government securities, in May 2010. On 16 December, SIX-SIS (the Swiss CSD) also communicated to the ECB its intention to migrate to T2S as part of the first CSD migration wave.

Throughout the year, CSDs took forward the preparation of their T2S adaptation plans, with the wide involvement of their respective markets. Some CSDs prepared extensive documentation and held numerous meetings open to all of their respective market participants (including those that do not take direct part in the T2S Advisory Group). These meetings represented important occasions for the CSDs to distribute relevant information on their level of T2S readiness and to discuss the way forward.

The wider involvement of all T2S external stakeholders successfully continued in 2011 in the forum provided by the T2S Advisory Group, which met four times throughout 2011. Several meetings were also held by the four sub-structures reporting to the Advisory Group, namely the Sub-Group on Corporate Actions, the Sub-Group on Message Standardisation, the Task Force on adaptation of cross-CSD settlement to T2S, and the Harmonisation Steering Group.

The Advisory Group is composed of approximately 90 participants, including representatives from all T2S stakeholder categories (i.e. central banks, CSDs and users who have expressed their interest in joining T2S) as well as a number of observers from EU and industry organisations. The Advisory Group has always been a key forum in the development of T2S, its primary role being to ensure that T2S will meet the needs of the European market. The support of the Advisory Group was critical in 2011, and helped shape all the most significant T2S decisions of the year, namely those concerning the new T2S governance structure of T2S (to come into place after the signing of the Framework Agreement and Currency Participation Agreement), the finalisation of the T2S pricing policy and price list, the connectivity policy, and the update of the T2S General Principles. In addition, the Advisory Group played a key part in assessing all market requests for changes to the T2S User Requirements. 16 of these requests, approved by the Advisory Group in 2010/11, were eventually incorporated in version 5.01 of the User Requirements, published in November 2011. Finally, the Advisory Group renewed its efforts to foster T2S-related harmonisation in the field of securities settlement.

A larger dissemination of information within the national markets was ensured through the activity of the T2S National User Groups. The latter, bringing together providers and users of securities settlement services at the national level, serve as links between the Advisory Group and the national financial communities and are mandated with assessing the impact of T2S on the local markets.

Besides their participation in the T2S Advisory Group and the T2S National User Groups, user representatives were also invited to participate in various ad hoc workshops organised by the ECB to discuss and clarify specific topics of particular relevance to them. Namely, in addition to the meetings on the T2S technical documentation, workshops were organised to address topics such as the schedule of the settlement day in T2S, pricing, the objectives of settlement optimisation, and the situation of Directly Connected Parties in T2S.


The 2011 discussion on pricing was based on the pricing policy established in November 2010, when the Governing Council committed to a T2S maximum unit price of 15 cent per DvP instruction until December 2018. The offer was subject to the following conditions: (i) non-euro currencies will add at least 20% to the euro settlement volume; (ii) the securities settlement volume in the EU will not be more than 10% lower than the T2S Programme Office’s projected volumes, which in turn were based on market advice; and (iii) tax authorities confirm that the Eurosystem will not be charged VAT for the T2S services it provides. The latter condition only affects the relationship between the 4CB and the Eurosystem, and the relevant national tax authorities have meanwhile issued a binding ruling that this relationship is outside the scope of VAT. Hence, condition (iii) no longer applies.

Following the decision on the T2S price guarantee, the T2S price list was finalised in 2011 according to the market’s feedback and advice. The T2S price list itemises all settlement, information and account management services that will be charged for in T2S. The details are shown in the box.

T2S price list

Tariff items Price Explanation
Settlement services (75% of T2S income)
Delivery versus payment 15 cents per instruction*
Free of payment/payment free of delivery 9 cents per instruction*
Internal T2S liquidity transfer 9 cents per transfer
Account allocation 3 cents per instruction*
Matching 3 cents per instruction*
Intra-position/intra-balance movement 6 cents per transaction
Auto-collateralisation service with payment bank 15 cents for issue and return, charged to collateral provider
Intended settlement day failed transaction 15 cents surcharge per business day failed per instruction*
Daytime settlement process 3 cents surcharge per instruction*
**Daytime – last two hours, 2pm – 4pm Free additional surcharge per instruction*
**Auto-collateralisation service with national central bank Free per transaction, charged to the collateral provider
**Instruction marked with “top/high priority” Free surcharge per instruction*
**Cancellation Free per instruction*
**Settlement modification Free per instruction*
Information services
A2A reports 0.4 cent per business item in a report
A2A queries 0.7 cent per queried business item
U2A queries 10 cent per executed query
Message bundled into a file 0.4 cent per message in each file containing bundled messages
Transmissions 1.2 cent per transmission
Account management services
**Securities account Free Fee options:
a) monthly fee per ISIN in the account or
b) monthly fee per account
**Fee per cash account Free Monthly
* Two instructions per transaction will be charged.
** These items will initially be free of charge, presuming that actual usage will be within an expected consumption pattern. However, should there be greater than expected use of the IT system resources, leading to an adverse effect on T2S performance, charging for these items will be reconsidered. Such a review will occur at regular intervals.

Services which are not covered by the T2S price list and are charged separately by T2S – for example, the pricing of common and specific changes or T2S consultancy services – are included in the inventory of T2S services charges.


The final T2S pricing policy, price list and inventory of service charges form part of the Framework Agreement that has been presented to CSDs for signature. When endorsing the Framework Agreement on 17 November, the Governing Council also decided to offer a financial incentive package to those CSDs which decide in favour of an early contractual commitment and on early migration to T2S. The incentives thus acknowledge the substantial contribution that these CSDs will make to the testing and smooth functioning of T2S in the initial phase after the start of T2S operation, and until the end of migration. The “early bird” package gives the following benefits.

  1. The waiver of the one-off entry fee (the fee is calculated as a quarter of the fees paid by a CSD to T2S during the first year after migration, which is a non-negligible amount).
  2. No fees for the first three months following the go-live date, i.e. all T2S services will be provided free of charge for the period July to September 2015.
  3. After September 2015 there will be a fee reduction by one third for the whole price list until the end of the last regular migration wave.

The extent to which a CSD can benefit from the financial package depends on when it signs the Framework Agreement and which migration wave it will be part of. All CSDs that sign by the June 2012 deadline will benefit from the waiver of the entry fee. If a CSD signs by April 2012, it will also be able to benefit from a three-month free-of-charge period (if it is in the first migration wave), and from the one-third fee reduction during the rest of the migration phase. Thus, the earlier a CSD migrates, the longer it can benefit from the reduced prices.

If a CSD (that is already established at present*) signs after June 2012, it will have to pay the one-off entry fee which is set at the rate of a quarter of the fees paid by the relevant CSD to T2S during the first year after migration. It will also not be able to benefit from the fee reductions.

The offer can be summarised as follows:

  Signature by April 2012 Signature by June 2012 Signature after June 2012
No fees for the first three months following the go-live date X - -
A one-third reduction across the whole price list until the end of the last regular migration wave X - -
Waiver of the entry fee X X -

* The entry fee for a newly created CSD may be waived under certain conditions if it signs the Framework Agreement by the end of April 2013.

Financial matters

The financial equilibrium of T2S requires that the costs that T2S will incur during its development and running phases are covered by T2S revenues (which is driven by T2S securities settlement volume).

In early 2011 the Eurosystem estimated that the total investment in T2S until it starts live operations will come to €356.4 million. Of this amount, in 2011 the Eurosystem paid €136 million to the entities conducting the work in the development phase, i.e. the 4CB and the ECB. Operating and maintaining T2S was estimated to cost €60.2 million per annum. €88.9 million capital costs for the financing of T2S were computed as well as €41.1 million of reserve funds which could be used for unforeseeable T2S costs incurred during operations.

In the course of 2011, additional cost elements were identified, such as: the need for implementing changes to the T2S User Requirements which the market deemed indispensable for the smooth functioning of T2S; the decision to seek T2S liability insurance; and the agreed postponement of the T2S go-live date by nine months. The Eurosystem has started to review all T2S costs with the objective of keeping cost increases to an absolute minimum.

All T2S costs will ultimately have to be recovered through the T2S fees over the life of T2S. The total T2S fees depend on two parameters: first, the volume of securities settlement transactions that will be settled in T2S and, second, T2S prices. In order to allow for realistic T2S volume projections and thus also projections of future T2S revenue streams, the Eurosystem continued its regular settlement volume analysis. This analysis is conducted on the basis of the information provided by European CSDs under the rules of the TARGET2-Securities Memorandum of Understanding (MoU) of 16 July 2009 between the Eurosystem and CSDs. According to the latest data reported by CSDs to the Eurosystem – which is still to some extent preliminary – 10.9% transactions less than expected by market participants in the Advisory Group in 2010 were actually processed in 2011: CSDs in the European Union settled 225.0 million transactions relevant for T2S in 2011, of which 55% represent euro settlement volume.

Harmonisation and cross-CSD settlement

The harmonisation-related activities connected to T2S assumed an increasingly prominent role in 2011. It became apparent that only a harmonised post-trade environment in Europe will allow T2S to fully realise its potential for efficiency and safety.

As a consequence, the T2S Harmonisation Steering Group was set up on 7 March and assigned the task of supporting the T2S Advisory Group in the formulation and monitoring of the T2S harmonisation agenda. The group has thus far published two T2S Harmonisation Progress Reports, the first one on 13 July 2011 and the second one in January 2012. A third report is expected in autumn 2012.

The T2S harmonisation work aims to deliver tangible results within the T2S project's scope and timeline. A list of 17 harmonisation activities (reported in the box) has been defined and each of these activities has been assigned concrete deadlines as well as specific actors who are responsible for the related monitoring and implementation.

T2S-related harmonisation activities

  • 1. T2S messages
    • 1.1 T2S ISO 20022 messages
    • 1.2 T2S matching fields
  • 2. T2S settlement day
  • 3. Cross-CSD settlement
  • 4. T2S Corporate actions standards
  • 5. Legal harmonisation
    • 5.1 Settlement finality I (moment of entry)
    • 5.2 Settlement finality II (irrevocability of transfer order)
    • 5.3 Settlement finality III (irrevocability of securities transfer)
    • 5.4 Location of accounts
    • 5.5 IT outsourcing
  • 6. Settlement discipline regime
  • 7. Settlement cycles
  • 8. Omnibus accounts
  • 9. Registration procedures
  • 10. Corporate actions market standards
  • 11. Place of issuance
  • 12. Tax procedures
    • 12.1 Withholding tax
    • 12.2 Transaction tax
  • 13. Shareholder transparency
  • 14. Investment funds shares settlement
  • 15. Market access and interoperability
  • 16. CSD ancillary services
  • 17. Securities amount data

As part of the enhanced harmonisation efforts of the T2S Programme, version 1.0 of the Market Implementation of Harmonisation Standards was published on 7 November. This document provides the template for reporting on the market implementation status, and will enable the T2S team to closely follow the steps taken by all countries involved in T2S towards harmonised post-trading practices.

In addition, in 2011 T2S actively took part in harmonisation-related forums and initiatives led by the European Commission. A representative from the T2S Programme Office has been a member of the European Commission’s Expert Group on Market Infrastructures (EGMI) since its establishment and contributed to the work of the group throughout 2011. After several rounds of discussions, EGMI published its report on 10 November.

Furthermore, on 15 February 2011 the ECB submitted its response to the European Commission’s first consultation concerning possible legislation on CSDs. The T2S team contributed significantly to this initial proposal, which then formed the basis for the development of the CSD Regulation. The CSD Regulation will be extremely relevant for promoting a safe and efficient settlement of securities and a level playing field among CSDs. The draft of the document was released by the EU Commission on 7 March 2012 for public consultation.

Finally, in its meeting on 28 and 29 September, the T2S Advisory Group created the Task Force on adaptation to cross-CSD settlement in T2S (TFAX), with the mandate to define and document common solutions for adaptation to cross-CSD settlement in T2S. The aim is to increase the efficiency of cross-CSD settlement for the CSDs and their participants on a non-discriminatory basis. The work of the TFAX in late 2011 and early 2012 resulted in the launch – on 29 February 2012 – of a mini-consultation of all T2S National User Groups on six solution papers concerning some topics which are relevant in cross-CSD contexts.


T2S was at the centre of several debates at SIBOS, held in Toronto from 19 to 23 September. The discussions touched upon T2S pricing, connectivity, the T2S plan and the interconnections between T2S and TARGET2. T2S senior representatives also participated in a panel with the industry revolving around the question: “Will the market deliver the cost efficiencies envisaged by T2S?” An addendum to the 2010 brochure “T2S: half-way to delivery” was also presented at SIBOS, providing an update on developments and decisions on the project since autumn 2010.

From 4 to 5 October the ECB hosted a T2S conference in Frankfurt entitled “Securities settlement in 2020: T2S and beyond”. Discussions considered the future of the post-trade industry from both a European and global perspective. Participation by high-level representatives from across the industry and from all continents ensured a lively and thought-provoking dialogue over the two days. The conference revealed that market participants consider T2S a reality that will have a significant impact on the future transformation of the securities industry.

T2S Info Sessions were held throughout the year in several locations in Europe with the support of the local central banks, namely in Frankfurt, Nicosia, Zurich, Tallinn, Paris and Stockholm. As always, stakeholders were kept updated through the quarterly review, T2S OnLine. In addition, news about T2S as well as all key technical and legal documents were made available to the public on the T2S website, along with all documents discussed by the T2S Advisory Group and its sub-structures during their meetings. The T2S project thus continued to be fully transparent.

Finally, T2S was one of the featured topics at a large number of conferences relating to securities settlement. Those events provided important occasions for explaining and discussing T2S more widely with the industry and authorities, as well as linking the project to other initiatives in the field.

T2S general objectives and targets

To reduce risk in the post-trade environment in Europe

  • by delivering real-time gross settlement exclusively in central bank money, ensuring the safest possible settlement of securities in Europe and significantly reducing the risks still affecting cross-border settlement today.
  • by employing the so-called “integrated model”, in which securities and cash accounts are held on a single platform, overcoming the delays in processing transactions and the risks of error which still exist in securities settlement systems based on the “interfaced model”.
  • by incorporating several features that aim to help banks optimise their liquidity and collateral management, the importance of which has never been as pronounced as it is today. T2S endeavours to give banks the possibility to have a single (and thus reduced) buffer based on their total European business by abolishing the need for market participants to hold multiple buffers of collateral and liquidity when settling in several European markets. Furthermore, the highly efficient auto-collateralisation mechanisms T2S plans to extend to all T2S markets should significantly reduce the need for pre-funding of cash accounts during both daytime and, in particular, night-time settlement.
  • by promoting greater diversification and sharing of risk, which will help make the whole system more stable. Through dramatically increasing the ease of cross-border transactions, T2S allows investors to hold a more geographically diversified portfolio of securities. T2S should provide investors with the possibility of higher risk-adjusted returns, and benefit issuers through a more diversified and stable investor base as well as a lower cost of capital. In general, T2S will help to increase financial stability in Europe, dampening the impact of asymmetric shocks by spreading economic gains and losses more widely.

To streamline the settlement process in Europe

  • by providing a single pan-European platform for securities settlement, following a “lean” T2S concept. Combining this with the drive for deeper harmonisation of financial markets, T2S seeks to enable banks to streamline and potentially consolidate their back offices, facilitating considerable cost savings. T2S aims to be a major step forward towards a fully straight-through processing world.
  • by making cross-border settlement as efficient as domestic settlement, while avoiding the cementation of national specificities into the system’s operational blueprint. T2S will force harmonisation in many crucial areas, such as the adoption of a common interface and common message formats, a common set of rules for intraday settlement finality and a harmonised daily timetable and calendar. Through this process, T2S aims to help remove Giovannini barriers 1, 2, 3, 4, 5 and 7*.

To enhance freedom of choice in the securities settlement industry in Europe

  • by increasing transparency, openness and competition between CSDs, penetrating the largely monopolistic national environment that they currently operate in. With 40 CSDs active in Europe today, the range of different national regulations and market practices have created a very opaque settlement industry that investors are not able to navigate without difficulty. Although the publication of settlement tariffs was made compulsory in the European Code of Conduct for CSDs, T2S endeavours to increase comparability with a fully transparent and uniform price list.
  • by separating the “infrastructure” from the “service”, giving customers in T2S more freedom of choice as regards where they want to trade and settle. Following the delivery of the system, CSDs will need to compete to be their customers’ preferred gateway to T2S, and in doing so must become open about what they are able to offer. T2S aims to ensure that customers will no longer be prevented from crossing national borders owing to technical and market practice restrictions, progressively transforming the securities settlement landscape in Europe.

To reduce the cost of settling securities transactions in Europe

  • by reducing the current cross-border settlement fees thanks to the economies of scale deriving from the concentration of settlement on a single platform. Cross-border settlement across European countries today is up to ten times more expensive than domestic settlement owing to the fragmentation of the process over several platforms and the need for the contribution of a long chain of intermediaries.
  • by assisting CSDs in their adaptation plans, in order to help them to also reduce domestic settlement fees.
  • by dramatically changing the competitive environment for European CSDs in combination with CSD legislation, and in doing so providing a higher degree of freedom for all participants. T2S aims to ensure that CSDs respond to this changing settlement landscape with a business model set to lead to cheaper securities settlement, whether through efficient reshaping, specialisation, consolidation or simply strategic pricing.
  • by expanding the system beyond the euro area. Through encouraging non-euro area CSDs and central banks to join the T2S Community, T2S plans to deliver a further reduction of prices in the future, exploiting fully the huge economies of scale present in such a system.

* The Giovannini barriers are a set of 15 specific barriers that prevent efficient EU cross-border clearing and settlement, identified by the Giovannini Group in a report in 2001. The barriers referred to that T2S seeks to help remove are the following:

  1. National differences in information technology and interfaces.
  2. National clearing and settlement restrictions that require the use of multiple systems.
  3. Differences in national rules relating to corporate actions, beneficial ownership and custody.
  4. Absence of intraday settlement finality.
  5. Practical impediments to remote access to national clearing and settlement systems.
  6. National differences in operating hours/settlement deadlines.