Cookie policy

By pursuing your navigation on our website, you allow us to place cookies on your device. These cookies are set in order to secure your browsing, improve your user experience and enable us to compile statistics. For further information, please report to our cookie policy.

Article (94/421)
T2S – Harmonisation is not the same as ‘one size fits all’
T2S – Harmonisation is not the same as ‘one size fits all’
Back

T2S – Harmonisation is not the same as ‘one size fits all’

25/11/2016

Alice Othigo

Alice Othigo

Product Owner, Asset Servicing, Clearing & Custody

BNP Paribas Securities Services

T2S is allowing multiple operating models. It will not be a case of ‘one size fits all.’ Choosing the right partner will be key to constructing the optimal post-trade model

Europe’s post-trade landscape is being transformed with the implementation of the TARGET2-SECURITIES (T2S) settlement platform which outsources the versus payment securities settlement from 23 CSDs to the Eurosystem. This is progressing well and should be completed by the end of 2017.  It brings settlement in central bank money, eases cross-border transactions and aligns fragmented settlement processes within a single, integrated environment. Already, CSDs representing around 45% of overall European volumes are processing their settlements on the T2S platform.

Reconsidering strategic options

Such a major infrastructural change has led many financial institutions to reconsider their European operational model.

Many have chosen to consolidate their settlement and custodial arrangements with one agent bank, whereas they previously had several. The harmonisation that T2S brings allows economies of scale and process simplification – easier achieved with one agent than many.

They have had to adapt processing to benefit from the new features and functions that T2S brings such as access to central bank money, liquidity optimisation through auto-collateralisation, and the various improvements that have been made to settlement processing. 

Some clients have considered a more radical approach, choosing to appoint an agent bank or an Investor CSD for their activity, whereas they previously used both.  Each option comes with advantages – the choice of which depends on the business profile of the institution involved.

Choosing the right partner

Investor CSDs promote a single gateway connecting customers with the T2S platform and leverage settlement in central bank money, bridges with their tri-party collateral engine and liquidity optimisation. The less harmonised asset servicing and the management of market-specific factors are often outsourced to a local agent bank.

Agent banks offer extended market coverage networks, local expertise and operational presence, enabling them to offer a comprehensive service without entering into complicated arrangements with additional agents. They also make available many of the advantages offered by the Investor CSDs, such as settlement with a single central bank money account, use of the T2S auto-collaterisation or connectivity to multiple tri-party collateral management platforms. Agents also offer clearing services, as well as an unmatched capability to finance the client activity without necessarily implying the immobilisation of collateral, and innovative models such as the combination of an agents-owned CSD account and client DCA (T2S Dedicated Cash Account).

T2S is allowing multiple operating models. It will not be a case of ‘one size fits all.’ A careful analysis, driven by a clear medium- to long-term strategy, has to be led, matching key criteria of choices on one side, and the proven availability of services and benefits on the other. Choosing the right partner will be key to constructing the optimal post-trade model.

To support you during this preparation phase, BNP Paribas Securities Services has developed an online tutorial. Click here to access our T2S online training.

Follow us