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TARGET2-SecuritiesTARGET2-Securities

Washington, Washington, May May 20072007

Washington, Washington, May May 20072007

Denis BeauDenis BeauDeputy DirectorDeputy Director

Payment Systems and Market Payment Systems and Market Infrastructure, Infrastructure,

Banque de FranceBanque de France

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IntroductionIntroduction

T2S is only one of several initiatives put T2S is only one of several initiatives put forward by public authorities of the EU to forward by public authorities of the EU to improve the post-trading infrastructure of EU improve the post-trading infrastructure of EU capital markets(removal of “Giovanni capital markets(removal of “Giovanni barriers”, ESCB-CESR, Code of Conduct)barriers”, ESCB-CESR, Code of Conduct)

T2S is a technical platform to be provided by the Eurosystem to CSDs to execute settlement instructions in central bank money

The decision to develop or not the T2S The decision to develop or not the T2S platform will be taken early next yearplatform will be taken early next year

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OutlineOutline

1.1. Why?Why?

2.2. How?How?

3.3. When? When?

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• 8 years after the launch the integration of market

infrastructures remains to be completed:

•11 CCPs

•21 CSDs

•Significant differences in technical requirements/market practices/taxation/legal rules for ownership transfer..

• Diverging strategies of market participants to develop further the integration:

•Development of links between systems

•Horizontal integration ( eg Euroclear, LCH.Clearnet)

•Vertical integration (e.g Clearstream)

1. Why?1. Why?

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cost of this lack of integration

0

5

10

15

20

25

30

35

UnitedStates

EUdomestic

EU cross-border

Min Max Avg.Source: Oxera, LSE, CEPS

Settlement Costs

1. Why?1. Why?

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• Benefits expected from T2S Efficiency of settlements improved:

Consolidation into one single platform processing both cash and securities

Based on the most efficient model

No more difference between cross-border and domestic,

Costs reduced: mutualisation of investment and running costs

Competition fostered since CSDs, which will retain their current role vis-a-vis their participants, will be able to offer added-value services (tri-party, securities lending…)

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T2S creates two main sources of cost savings to market participants:

Reduction in the number of settlement engines

at CSD level

Reduction in CSD infrastructure costs Reduction in custodian back-office costs

(number of interfaces)

Reduction in domestic (CSD) feesReduction in cross-border (custodian)

fees

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OutlineOutline

1.1. Why?Why?

2.2. How?How?

3.3. When?When?

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CSD

Custody

Other…

Reporting

Lending

Coll. Mgmt

Settlement

CSD

Custody

Other…

Reporting

Lending

Coll. Mgmt

T2S

Settle-ment

T2S world

It provides a common settlement facility

T2S does not segregate custody and settlement…T2S does not segregate custody

and settlement…T2S does not segregate custody and settlement…

CSD operations today

2. How?2. How?

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The concept: securities and cash accounts in one platform

T2S

CSD A

CSD B

CSD C

T2S SETTLEMENT

ENGINE

SECURITIES TARGET2 CASH

CSD A ACCOUNTS

NCB C ACCOUNTSCSD C ACCOUNTS

CSD B ACCOUNTS NCB B ACCOUNTS

NCB A ACCOUNTS NCB A

NCB B

NCB C

TARGET2

2. How?2. How?

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OutlineOutline

1.1. Why?Why?

2.2. How?How?

3.3. When?When?

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Phase 1 Phase 2 Phase 3

User Requirements Detailed Functional Specifications

(DFS) Architectural Specifications Decision on Migration Policy

March 2007

T2S Development & Implementation

Units and Modules Testing

Fine Tuning (DF S)

UAT Testing Integration,

performance, interface & back up testing

Migration Options Final Deployment

T2S

Production

March 2013

Governing Council Decision

Public consultation

3. When?3. When?

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Governing Council decision 8 March 2007•Feasible to build T2S• Move to next phase (user requirements)• Decision on development phase: early 2008also• T2S built on TARGET2• Regular and transparent interaction with stakeholders • Centralised collateral system to replace CCBMGoverning Council decision 26 April 2007• Launches the public consultation on the general principles and proposals• Approves UR phase Governance • Preparation of UR by the end of 2007 and second consultation thereafter

3. When?3. When?

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Objectives of the next phase

• Consult the market on principles, needs and expectations

• Define the T2S User Requirements

In cooperation with all T2S stakeholders

• Prepare decision of CSDs to commit to T2S or not

• Keep all stakeholders involved in the process

• Refine the cost/benefit evaluation

3. When?3. When?

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T2S Advisory Group

Co-ordination Group

Scope &

Schedule

National User Groups

ECB Governing Council

Lifecycle &

Matching

Settlement

FunctionalityStatic Data Interfaces

Non-functional

requirements

Executive Board PSSC

3. When?3. When?

Information Sessions with all

Stakeholders

Six Technical Groups

Governance of the project

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Conclusions

Objectives of T2S: To contribute to the integration of European post-market

infrastructures To provide efficient and harmonised settlement services in

central bank money To reduce the cost of securities settlements To contribute to harmonisation of market practices

Complementarity between the initiatives of the Commission and those of the ECB/Eurosystem

Complementarity between T2, T2-S and CCBM2

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