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TARGET2-Securities

TARGET2-Securities. Denis Beau Deputy Director Payment Systems and Market Infrastructure, Banque de France. Washington, May 2007. Introduction.

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TARGET2-Securities

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  1. TARGET2-Securities Denis Beau Deputy Director Payment Systems and Market Infrastructure, Banque de France Washington, May 2007

  2. Introduction • T2S is only one of several initiatives put forward by public authorities of the EU to improve the post-trading infrastructure of EU capital markets(removal of “Giovanni 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 platform will be taken early next year

  3. Outline • Why? • How? • When?

  4. 1. Why? • 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)

  5. cost of this lack of integration 1. Why? Settlement Costs Source: Oxera, LSE, CEPS

  6. 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…)

  7. T2S creates two main sources of cost savings to market participants: Reduction in CSD infrastructure costs Reduction in custodian back-office costs (number of interfaces) Reduction in the number of settlement enginesat CSD level Reduction in domestic (CSD) fees Reduction in cross-border (custodian) fees

  8. Outline • Why? • How? • When?

  9. 2. How? CSD CSD operations today T2S does not segregate custody and settlement… Lending Reporting T2S does not segregate custody and settlement… T2S does not segregate custody and settlement… Custody Settlement Other… Coll. Mgmt T2S world T2S CSD Lending Reporting Settle-ment Custody It provides a common settlement facility Other… Coll. Mgmt

  10. 2. How? The concept: securities and cash accounts in one platform TARGET2 CASH SECURITIES CSD A NCB A CSD A ACCOUNTS NCB A ACCOUNTS T2S SETTLEMENT ENGINE CSD B NCB B CSD B ACCOUNTS NCB B ACCOUNTS NCB C CSD C NCB C ACCOUNTS CSD C ACCOUNTS T2S TARGET2

  11. Outline • Why? • How? • When?

  12. 3. When? Phase 1 Phase 3 Phase 2 · UAT Testing Public consultation · · T2S Development & · Integration, · Implementation User Requirements performance, · · Units and Modules interface & back up Detailed Functional Specifications Testing testing (DFS) · · · Fine Tuning (DF S) Migration Options Architectural Specifications · · Final Deployment De cision on Migration Policy March March 2007 2013 Governing T2S Council Decision Production

  13. 3. When? • Governing Council decision 8 March 2007 • Feasible to build T2S • Move to next phase (user requirements) • Decision on development phase: early 2008 • also • T2S built on TARGET2 • Regular and transparent interaction with stakeholders • Centralised collateral system to replace CCBM • Governing 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

  14. 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?

  15. 3. When? • Governance of the project ECB Governing Council PSSC Executive Board T2S Advisory Group National User Groups Information Sessions with all Stakeholders Co-ordination Group Scope & Schedule Lifecycle & Matching Settlement Functionality Interfaces Non-functional requirements Static Data Six Technical Groups

  16. 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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