T2S: Settling without borders in Europe Meeting with Latvian NUG - - PowerPoint PPT Presentation

T2S: Settling without borders in Europe

Meeting with Latvian NUG Riga, 31 August 2011 Mr Jean-Michel Godeffroy T2S Programme Board European Central Bank

1

What is T2S?

What is T2S?

A single IT technical platform An entirely new concept A solution to the current fragmentation

Reversed integrated model Multi-currency dimension Core, Neutral Borderless securities settlement Harmonised Commoditised DvP in CeBM

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What is T2S?

A multi-currency platform

• ECOFIN asked the Eurosystem not to limit T2S to the euro area
• T2S has been designed as a genuine multi-currency system from its outset

a generic and flexible system, which handles all currencies on an equal basis

• Larger participation means exploitation of economies of scale: win-win scenario

for all euro and non-euro area participants

• Non-euro area NCBs participating in T2S will have the same rights regarding their

currency as the Eurosystem will have regarding the euro

• The legal set-up of T2S gives guarantees to CSDs and non-euro area NCBs

having their accounts in T2S

• Non-euro area stakeholders associated in the governance bodies at all levels
• Transparency implies that no new development could be decided without public

debate

• T2S and harmonisation go hand in hand greater benefits if practices are

harmonised across the whole of Europe

3

What T2S is not? T2S is not a CSD

but a service offered to CSDs for settlement only (i.e. change of ownership among investors) T2S does not offer CSD services like

• Notary function (i.e. registration of issuer indebtedness and investor

holdings)

• Custody and asset-servicing function (e.g. calculation of coupon

payments, execution of reorganisation, etc., but supports settlement of the entitlements)

• Banking function (e.g. lending and borrowing; only in some (I)CSDs)

4

What is the aim of T2S?

The 5 big wins

• f T2S

Cross-border settlement as inexpensive as domestic Reduce collateral/liquidity needs for users Harmonise settlement to make Europe a true Single Market Create new

• pportunities

for competition Users will only need an account at one CSD to settle all securities transactions

5

T2S community

30 CSDs are working towards joining T2S

NBB-SSS OeKB Euroclear Sweden AB Euroclear Finland Oy Euroclear France S.A. NEGICEF Euroclear UK and Ireland CIK Cyprus Stock Exchange Clearstream Banking Ffm Clearstream Banking Lux Iberclear – BME Group HELEX BOGS Monte Titoli S.p.A. Malta Stock Exchange plc SITEME INTERBOLSA CDCP KDD SIX SIS LTD VP SECURITIES EVK CSD of Lithuania, plc Latvian Central Depository Depozitarul Central S.A. Icelandic Securities Depository VPS KDPW KELER

6

Where we stand?

Contractual negotiations with CSDs and non-euro CBs

• The negotiations with CSDs on the Framework Agreement (FA)
• Negotiations on the FA were launched in 2009
• The ECB Governing Council will approve the FA in October 2011 and offer it

to CSDs for signature thereafter

• The negotiations with non-euro central banks on the Currency

Participation Agreement (CPA)

• Negotiations on the CPA were launched in 2010
• The ECB Governing Council will approve the CPA in October 2011 and offer

it to non-euro central banks for signature thereafter

• The Programme Board will propose the principles for treating the

“late joiners” (i.e. CSDs and NCBs that do not sign FA/CPA in 2011) for discussion in the next Advisory Board

CSDs and non-euro CBs’ participation in T2S is voluntary

7

Where we stand?

T2S pricing policy

• ECB Governing Council decided to fix the DVP price at 15 cent per instruction

for the period Sept 2014 to Dec 2018

• Commitment not to increase T2S fees by more than 10% per year between 2019 and

the end of the cost recovery period, i.e. September 2022

• This pricing policy is subject to the following conditions:

– in addition to the euro settlement volume, non-euro currencies add at least 20% to the total volume – securities settlement volume in the EU is no more than 10% lower than the volumes projected by the T2S Programme Office, which are based on information provided by market participants – tax authorities confirm that the Eurosystem will not be charged VAT for T2S services (confirmed)

• T2S Price List: http://www.ecb.europa.eu/paym/t2s/pricing/list/html/index.en.html

The T2S Programme Board aims at further lowering settlement prices below 15 cents after 2019

8

Where we stand?

T2S functional and non-functional aspects

• Two-month public market consultation on User Detailed Functional

Specification (UDFS) finished at the end of May 2011

­ UDFS v1.2 will be published in Q4 2011

• Connectivity to T2S will be supported by
• Two licensed value-added network service providers (NSPs), selected in two

logical steps by end 2011

• 1st step: exclusion of NSPs on the basis of insufficient financial strength and experience in

the provision of similar services

• 2nd step: awarding of licenses on the basis of their lowest maximum price charged to the

community of directly connected actors

• One dedicated link provider (value added connectivity services to be implemented

in T2S and by users)

• The selection of preferred approach for the basic connectivity provider is ongoing

All CSDs and non-euro CBs connecting to T2S are applied with the same public and non-discriminatory access conditions (e.g. access to T2S services, applied fee schedule, etc.)

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How do I benefit from T2S?

CSDs

Custodians

Investors Issuers

Benefits of T2S

• T2S will produce dynamic effects, resulting in more

cross-border business

• T2S will benefit all market participants

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How do I benefit from T2S?

CSDs

• Access to a technologically advanced, state-of-the-art, and

highly robust settlement engine

• Ability to take advantage of economies of scale from pooling

together settlement volume across the whole of Europe

• New business opportunities and access to new markets for

asset-servicing

• Long-term savings from efficient re-shaping to T2S

11

How do I benefit from T2S?

USERS

• Same processing and reduced settlement fees for all

transactions (no need to distinguish between cross-border and domestic)

• Possibility to access all securities from potentially one CSD
• Possibility to optimise collateral and liquidity

management

• Reduced back-office costs by streamlining interfaces and

centralising settlement activity

• New business opportunities and access to new markets for

asset-servicing

12

How do I benefit from T2S?

MARKETS

• Fostering a higher level of competition in Europe’s post-trade

industry

• Contributing to harmonisation of clearing and settlement in

Europe, thereby promoting a Single Market for financial services

• Reducing the cost of capital for firms, thus contributing to

economic growth

• Positively impacting financial stability by reducing settlement

risks on cross-border transactions

• Offering easy portfolio diversification to investors
• Enabling issuers to easily reach European investors

13

Irrespective of whether an European market is settling in or out T2S, any market, CSD, trading platform, bank, broker, fund manager, issuer, investor will face opportunities and changes in current status and in the way doing business potentially already before T2S Go-Live in 2014/2015

14

The role of T2S

Removal of Giovannini barriers* Adoption of agreed common standards and practices Requirement for further harmonisation and standards

Contributions Catalyst/Stimulator

* Alberto Giovannini led a group that defined 15 technical, legal and fiscal differences between EU/EEA countries in 2003, which make it difficult for service providers to extend their reach beyond their home country

T2S implements the agreed European-wide market practices and stimulates the need for further practices and agreements

practical solutions to maximise the benefits of T2S expanding on the agreement already achieved in the market

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… consider how to implement the required change, assuring at least the existing level of efficiency and lowering operational risks and barriers for foreign investors investing into local securities and for local investors investing into foreign securities

Aspects coming from T2S system specifications

Aspects agreed as European market practices and principles in T2S for settlement and related services

A change is inevitable …

16

What is expected from me soon?

• Consider possible opportunities and challenges that T2S will bring

about to your institution/company, to the Latvian market

• Consider different scenarios and their impact on whether and when

the Latvian CSD will sign the FA

• Be ready to decide together with the Latvian community (National

User Group) on joining T2S in order to support your CSD in its next steps in and after November 2011

• Think of how to succeed in the new situation
• Plan your adaptation

17

Conclusion

Today vs. Tomorrow

CSD A Market participants CSD B CSD C CSD D CSD E CSD x Custodians links

• 19 CSDs in euro area
• 2 ICSDs
• another 16 CSDs in the

EU

Custodians Market participants Custodians CSD A CSD B CSD C CSD x One technical platform used by CSDs for securities settlement direct access

CURRENT EU settlement landscape:

Non-integrated cross- border settlement

FUTURE EU settlement landscape with T2S:

One integrated settlement process (domestic and cross-border)

Thank you for your attention

www.t2s.eu