What is TARGET2-Securities (T2S)?

When investors buy and sell securities the security and payment need to change hands – a process called securities settlement. TARGET2-Securities, or T2S, is a safe platform where the exchange can happen simultaneously, i.e. where delivery versus payment is possible.

Safer and more efficient securities settlement

T2S revolutionised securities settlement in Europe because it brought an end to complex cross-border settlement procedures and the problems caused by different settlement practices among countries.

Instead with T2S we have a common platform on which securities and cash can be transferred between investors across Europe, using harmonised rules and practices. Currently 20 European countries use T2S.

Banks pay for securities on the platform using the account they have with their central bank, so the money used to settle transactions is central bank money. As a result, transaction risk is greatly reduced.

Why T2S?

T2S lays the foundations for a single market for securities settlement and thus contributes to achieving greater integration of Europe’s financial market. It does this by:

  • making it easier for investors to buy securities in other EU countries
  • reducing the cost of cross-border securities settlement
  • increasing competition among providers of post-trade services (i.e. clearing and settlement services) in Europe
  • pooling collateral and liquidity, meaning that banks no longer need to keep these in various locations and can quickly move them to where they are needed
  • reducing settlement risk and increasing financial stability by using central bank money for transactions on the platform.

How does it work?

If you are a market participant and you want to settle securities transactions using the T2S platform, you need a securities account with one of the central securities depositories (CSDs) connected to T2S and a dedicated cash account with one of the central banks connected to the platform. These accounts live side by side on the common platform – i.e. the settlement model is integrated for fast, low-risk and efficient settlement.

Simultaneous settlement

For each transaction, settlement instructions from the CSD and the central bank are matched by T2S when they enter the system. T2S then settles the transaction on a delivery-versus-payment (DvP) basis, i.e. the money and securities change hands simultaneously. Transactions are made using central bank money, which reduces risk.

T2S also offers a set of sophisticated technical features, including optimisation algorithms to enhance settlement efficiency and advanced auto-collateralisation mechanisms.

Connecting to T2S

Market participants usually communicate with T2S via the technical interface of their CSD or central bank, but banks can also choose to instruct T2S directly. Directly connected participants still need an account with their central bank and a CSD to be able to settle the securities transactions.

Central securities depositories

21 CSDs from 20 European countries, and by extension their local market communities, are connected to T2S. To access the platform, a CSD needs to comply with the eligibility criteria and to sign a contract, called the Framework Agreement, with the Eurosystem.

Central securities depositories

Different currencies in T2S

Currencies other than the euro can be used for settlement in T2S if the central bank concerned is connected to the platform and willing to add its currency. In addition to the euro, the Danish krone is available for settlement in T2S since October 2018.
Currency Participation Agreement

Related European Commission initiatives