The success of the migration plan for TARGET2-Securities – aka T2S the single, pan-European platform for securities settlement in central bank money – rests largely on the third wave of migration (Wave 3), according to BNY Mellon.
T2S began operating a year ago, having been launched by the European Central Bank (ECB) in 2008 to end fragmentation in securities settlement across the eurozone, as the cost of cross-border transactions could be 10 times more expensive than domestic transactions.
The T2S migration plan commenced with Wave 1, which took place between June 22 and August 31 2015, while Wave 2 followed on March 29 this year. Wave 4 is scheduled for February 6 next year and the final wave is in just over one year’s time, on September 18 2017.
Wave 3 of T2S is scheduled for today, when Euroclear Belgium, VP Securities in Denmark, Euroclear France in France, VP Lux in Luxembourg and Euroclear Nederland are due to join the project. The single IT platform allows settlement in central bank money across borders, central securities depositories (CSDs) and currencies so there is no difference between domestic and cross-border transactions.
“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,” said Tom Casteleyn, head of product management for custody, cash and FX at BNY Mellon.
“A critical mass of settlement volume is scheduled to go live on 12 September 2016, 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.
“A successful migration of Euroclear’s CSDs in France, Belgium and the Netherlands, and VP CSDs in Denmark and Luxembourg will give the market confidence to push ahead with T2S initiatives. It will also allow custodians to develop the products and services that will facilitate more efficient clearing, settlement and collateral management.
“The industry will soon need to focus on the significant challenge of migrating Clearstream’s CSD in Germany – the project’s largest market – in Wave 4. Wave 3 must run smoothly to ensure settlement volume isn’t pushed back to later waves and avoid stretching capacity too far.”