Credibility of ECB’s settlement programme put to test

The plan to harmonise post-trade settlement in Europe, including for funds, takes a leap forward today as two central securities depositories (CSDs) begin settling in central bank money.

What is described as ‘Wave 3’ sees a “critical mass” of securities settlements take place and the market will evaluate whether firms’ investments in the platform were justified, said a post-trade expert.

Wave 3 of the harmonising project known as Target2Securities (T2S) sees the CSDs Euroclear Bank and VP Securities start using the T2S platform for securities settlement in various European markets.

Brussels-based Euroclear will transact on T2S for securities traded in Belgium, France and the Netherlands, while Denmark’s VP Securities covers Denmark and Luxembourg. The migration took place over the weekend and the European Central Bank (ECB) – which created and manages the project – said today services were operating normally.

T2S is the ECB’s attempt to harmonise settlement in Europe’s capital markets and aims to reduce the cost and complexity of cross-border securities settlement by providing a single platform that will cap fees at 15% a transaction.

It is initially for securities settled by central banks in the Eurozone. Once the platform proves viable by attracting enough liquidity, it is likely to be extended to other instruments (including funds), countries and even other parts of the transaction lifecycle.

Tom Casteleyn, head of product management for custody, cash and foreign exchange at BNY Mellon, said: “Wave 3 represents a tipping point which will enable the market to evaluate whether the T2S project justifies the investment companies have made in the platform.”

He said a “critical mass of settlement volume” was scheduled to go live today, providing the first meaningful picture of the project’s capabilities.

“Extensive work and investment has gone into ensuring that the T2S project is successful and delivers the benefits first promised by the ECB. Initial delays to the migration of Italy’s Monte Titoli and more recent challenges faced by Euroclear’s CSD have led some market participants to question whether the resource invested in T2S will be justified.”

But a successful migration of Euroclear’s and VP’s CSDs will give the market confidence to push ahead with T2S initiatives, Casteleyn added, and allow custodians to develop products and services that will facilitate more efficient clearing, settlement and collateral management. 

Funds Europe reports here on T2S in the latest issue of the magazine.

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