Post-trade harmonisation is a key objective of T2S, supported by the T2S Community, the Governing Council of the ECB and EU public authorities. Progress in the harmonisation agenda will enable T2S to realise its full potential to benefit the European market, in terms of efficiency and level playing field.
The objectives of T2S harmonisation are:
The importance of the timely implementation of the T2S harmonisation standards across all T2S markets was highlighted by the T2S Board in its view on the T2S harmonisation standards compliance framework:
Post-trade harmonisation is an important component of the EU financial integration process. The integrated infrastructure provided by T2S will bring about technical and operational harmonisation – which is a key ingredient for the creation of a single market for settlement services in Europe. It will complement the legal and regulatory harmonisation agenda currently pursued by EU legislators.
Lack of harmonisation in the post-trade industry is a big issue for Europe. Many of the barriers to cross-border clearing and settlement identified in the Giovannini reports in 2001-2003 still remain in place. This lack of harmonisation makes settlement more expensive and less safe, particularly in a cross-border environment. The creation of a single settlement engine in Europe – T2S – is acting as a major catalyst for the ongoing initiatives for the removal of most barriers to cross-border settlement.
The T2S-related work on harmonisation is steered by the T2S Advisory Group (AG), and supported by the Harmonisation Steering Group (HSG). The HSG supports the AG in formulating and monitoring the T2S harmonisation agenda. The AG has identified a set of T2S harmonisation activities and the actors responsible for the definition, monitoring and timely implementation of standards in each activity. More information on the T2S harmonisation activities is available here. The AG has already endorsed a number of standards/market practices for T2S markets.
Only the markets that have signed up for T2S are involved and considered in the T2S harmonisation activities. Monitoring of compliance with standards is carried out following a solid methodology. The status of T2S markets and harmonisation activities is assessed using a "traffic light approach". Red status signals the need for urgent action in order to achieve compliance by the relevant target date. More information is available in Annex 1 to the Fourth T2S Harmonisation Progress Report (Methodology).
The AG publishes regularly reports about the T2S harmonisation progress.
Based on the view of the T2S Board on the T2S harmonisation standards compliance framework, the AG has prepared an assessment of the impact of non-compliance of some T2S markets with T2S Harmonisation Standards (download a summary of the assessment ). The T2S Board, based on this report, decides on the follow-up measures to be taken with respect to the non-compliant markets.
Other T2S bodies that contribute to the harmonisation work stream are the Sub-group on Message Standardisation, the Corporate Actions Sub-group, and the Cross-Border Market Practices Sub-Group (X-MAP), the Task force on T+2 and the Task force on CSDR Level II standards.
The T2S project is designed to make cross-border settlement as efficient and safe as domestic settlement in the T2S markets (covering 24 CSDs at the moment). The Eurosystem has avoided the inclusion of national specificities into the system’s operational blueprint and kept T2S "lean", i.e. limited to core settlement processes and excluding national specificities. Participation in T2S will increase the incentives to remove specificities and reach wider harmonisation in order to be more competitive in the increasingly integrated EU financial market.
In some areas, harmonisation will be a direct consequence of the introduction of T2S. The very design of the single settlement engine implies the adoption of the ISO IT communication protocol and the use of a common settlement timetable across T2S markets. T2S alone will help break down 6 out of the 15 Giovannini barriers. Further harmonisation will be achieved as a consequence of the T2S system specifications, T2S standards or market practice. The work on T2S settlement finality rules, corporate actions on flows and cross-CSD settlement are some examples of this new environment.
Another major factor in reshaping the securities settlement landscape in Europe is the new legislation at the EU level. From a T2S perspective, a key role is played by the CSD Regulation because several T2S harmonisation activities are linked to it. The final version of the CSD Regulation was published on 16 July 2014.
T2S is also stimulating harmonisation in wider areas that fall beyond its scope, acting as a catalyst. For example, the prospect of the introduction of T2S in 2015 has also been one of the triggers for the creation of the European Post Trade Group, a joint initiative on post-trade harmonisation involving both the public and the private sectors. The European Post Trade Group has published an annual report (PDF) about its activities in 2013. A more detailed description of the interaction of T2S with other European initiatives for post-trade harmonisation (including the CSD Regulation) can be found on the T2S harmonisation pages.