TARGET2-Securities

Today the Governing Council of the European Central Bank (ECB) has concluded that it is feasible to implement TARGET2-Securities and has therefore decided to go ahead with the next phase of the project, namely the definition of user requirements on the basis of market contributions. The scope of the project will be determined by taking into account the results of a public consultation. The Governing Council will then decide on the subsequent development phase. This decision is expected by early 2008.

On 7 July 2006 the Governing Council announced that it would “evaluate opportunities to provide settlement services for securities transactions”. To this end, it invited the Payments and Settlement Systems Committee (PSSC) to prepare a blueprint and a detailed feasibility study on the project by end-February 2007.

The blueprint describes TARGET2-Securities (T2S), which is a proposal for central securities depositories (CSDs) to use a common technical service that would execute settlement instructions. T2S would provide delivery versus payment (DvP) for securities against central bank money. CSDs would maintain their relationships with intermediaries, investors and issuers, as well as their asset servicing function (such as the management of corporate actions).

Based on the analysis of the blueprint and feasibility study as well as input from market participants (especially the CSDs and their users) and public authorities (in particular the EU Council of Ministers of Economic Affairs and Finance (ECOFIN), the European Parliament and the European Commission), the Governing Council concluded that the project is feasible and has therefore decided to launch the next phase of the project. The objective of this phase is to prepare, in cooperation with CSDs and market participants, user requirements that the Eurosystem regards as deliverable within a reasonable cost and time scale.

This next phase includes the following two steps:

The Governing Council of the ECB intends to hold another public consultation by the end of 2007, requesting comments on fully articulated user requirements. Only after this public consultation has taken place (i.e. by early 2008), will the Governing Council decide on the development phase. When deciding whether or not to join T2S, CSDs are expected to follow the interests of their users.

Furthermore, the Governing Council decided today that T2S will be developed and operated within the Eurosystem on the TARGET2 platform in order to exploit synergies to the fullest extent. Four Eurosystem national central banks (Deutsche Bundesbank, Banco de España, Banque de France and Banca d’Italia) are ready to develop and operate T2S. Use will be made of the valuable experience and knowledge that is available in the market.

The Eurosystem will continue to inform public authorities, stakeholders and the general public regarding progress made on the project on a regular basis and in a transparent manner. The blueprint and the feasibility study will be published on a dedicated T2S section on the ECB’s website (http://www.ecb.europa.eu/paym/market/secmar/integr/html/index.en.html).

Finally, following a request from the Eurosystem’s market counterparties, the Governing Council also decided to review the current Eurosystem collateral management handling procedures, in particular, the Correspondent Central Banking Model (CCBM). It has decided to develop in parallel a single platform, allowing the Eurosystem to manage collateral both for domestic and cross-border operations based on the existing systems such as that of the Nationale Bank van België/Banque Nationale de Belgique and De Nederlandsche Bank. In the coming weeks, market participants will also be invited to contribute to the definition of the user requirements for this new procedure.