Transcript TARGET2-Securities

Annex 2
TARGET2-Securities
Jean Michel Godeffroy
Director General
Payment Systems and Market Infrastructure
ECB
Luxembourg, 19 September 2007
Outline
1.
2.
3.
4.
5.
What is T2S?
What can T2S do?
Expected effects of T2S on post-trading
First phase of the project: T2S governance
The project: principles and proposals.
Consultation process
6. Moving forward
Outline
1.
2.
3.
4.
5.
What is T2S?
What can T2S do?
Expected effects of T2S on post-trading
First phase of the project: T2S governance
The project: principles and proposals.
Consultation process
6. Moving forward
What is T2S?
A project for…
• … Europe, implementing the Lisbon agenda
• Supporting to the integration of the market infrastructure
• Making cross-border transactions, domestic ones in Europe
• Enhancing competition in a financial service segment largely
based on national monopolies
Making Europe a better place to invest
and trade
What is T2S?
SETTLEMENT INSTRUCTIONS
CENTRAL BANK
MONEY
SECURITIES
CSD A
NCB A
CSD A ACCOUNTS
NCB A ACCOUNTS
T2S
SETTLEMENT
ENGINE
CSD B
CSD C
CSD B ACCOUNTS
NCB B ACCOUNTS
CSD C ACCOUNTS
NCB C ACCOUNTS
T2S platform
NCB B
NCB C
Outline
1.
2.
3.
4.
5.
What is T2S?
What can T2S do?
Expected effects of T2S on post-trading
First phase of the project: T2S governance
The project: principles and proposals.
Consultation process
6. Moving forward
What can T2S do?
• Provide a single venue where all EU assets can be exchanged for euro.
• Reduce cost of cross-CSD settlement via a single settlement platform and
standardized communication protocols.
• Eliminate financial exposure in cross-CSD settlement through central bank
money settlement.
• Provide position takers with the ability to optimise the financing of long
positions and borrowing for short sales across all EU assets in euro (and
other currencies over time).
• Increase efficiency of collateral management by the intraday transfer of
collateral in securities among CSDs over a wide time window
• Support capital markets to provide efficient and stable intermediation
between buyers and sellers.
• Reduce complexity and associated operational costs and risks by
harmonizing market rules and practices for settlement and settlement
related corporate events.
Today’s world
What will change?
CSD
T2S world
CSD
Lending
Reporting
Lending
Reporting
Custody
Settlement
Coll. Mgmt
Other…
Key success factors
1. Right set of messages,
queries & requests
T2S
Settlement
Custody
Coll. Mgmt
T2S does not segregate
custody and settlement
Other…
2. Availability
3. Response time
Outline
1.
2.
3.
4.
5.
What is T2S?
What can T2S do?
Expected effects of T2S on post-trading
First phase of the project: T2S governance
The project: principles and proposals.
Consultation process
6. Moving forward
Expected effects of T2S on post-trading
• Increased efficiency in securities finance, reduced cost of funding and
collateral management have positive effects on liquidity.
• Dynamic effects on trading volumes and liquidity due to
- increased competition in trading
- better pricing of securities
- unencumbered access to settlement
• Further savings from reduced fail rates from simplified processing, reduction
in operational errors and easier management of funds.
• Acceleration in the harmonisation of settlement related asset servicing.
• Enhanced competition in servicing assets will help investors to reduce cost.
• Reduction in intermediaries’ back-office costs through economies of scale
Expected effects of T2S on post-trading
In a nutshell:
•Increased market liquidity and access to wider investor base lead to
lower cost of capital for issuers
•Increased market liquidity and lower cost of portfolio diversification lead to
better return for investors
Outline
1.
2.
3.
4.
5.
What is T2S?
What can T2S do?
Expected effects of T2S on post-trading
First phase of the project: T2S governance
The project: principles and proposals.
Consultation process
6. Moving forward
First phase of the project: T2S governance
ECB Governing Council
PSSC
Executive Board
72 persons
62 institutions
Information Sessions
with all Stakeholders
Advisory
14 Users
Group
14 NCBs
123 persons
33 institutions
14 CSDs
National User
Groups
Observers
Coordination
Group
TG1
Scope and
schedule
TG2
Lifecycle
management
TG3
Settlement
functionality
• 188 experts coming from 77 institutions
• All CSDs settling in euro participate
• 33 custodian banks
TG4
Static data
TG5
Interfaces
TG6
Non-functional
Outline
1.
2.
3.
4.
5.
What is T2S?
What can T2S do?
Expected effects of T2S on post-trading
First phase of the project: T2S governance
The project: principles and proposals.
Consultation process
6. Moving forward
Principles and proposals
• A public consultation on the document “T2S: general
principles and high-level proposals”, defining the nature and
scope of TARGET2-Securities (T2S), has been launched on 26
April 2007.
• Market participants were invited to comment by end June
2007. We got 57 responses.
Principles
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Revision of text of the principles as “key cornerstones” of
T2S defined by the ECB Governing Council
Main purpose of revisions: Achieve common understanding
These clarifications result from:
– Consultation process (in particular 25 June Info session)
– Issues raised at TG level
Next step: ECB Governing Council to validate the
clarifications proposed by the AG
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67
Proposals
Satisfaction per proposal
60
50
40
30
20
10
0
Proposal number
I agree
I do not agree entirely
I completely disagree
Proposals
Statements on proposals
9%
I agree
6%
I do not agree
entirely
20%
65%
I completely
disagree
no answer
Proposals - Before the AG
• Assessment of comments by the AG to provide guidance to the TGs
• The Project Team classified each of the 67 proposals into 3 groups before
submitting them to the AG:
35 Green Proposals:
The AG was invited to validate them as they were originally drafted
(sometimes with minimal editing changes)
18 Yellow proposals:
Further debate was deemed beneficial before taking a decision. The
AG was invited to mandate a specific TG to further analyse the topic.
The AG would then reconsider the proposal at its September
meeting.
14 Red Proposals:
The AG was invited to change the proposal
Proposals - Before the AG
• The most contested proposals were classified as yellow or
red, but not asked for validation by the AG
– All proposals which had less than 50% of full agreement were classified
as yellow or red (2,23,30,33,35,44,52,57,60 and 67)
• The proposals where validation by the AG was suggested had
a high level of agreement among the responders
– These 35 proposals were fully agreed by 83% of respondents on
average
Proposals – Main debate
Proposals 2, 3, 4 and 5:
Original: TARGET2 real-time gross settlement (RTGS) accounts or sub-cash accounts
shall be used as cash accounts for T2S.
Reviewed: The cash leg of T2S settlements will take place on T2S dedicated
accounts. A consolidated view on euro liquidity available in T2 RTGS accounts
and T2S cash accounts will be provided. Real-time liquidity transfers between
T2 RTGS accounts and T2S cash accounts (and vice versa) will be possible
automatically and on demand.
Agreed
Main issues
•
Discard T2S cash settlement taking place on RTGS account.
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Ensure consolidated view on central bank money accounts. Automated
transfer facilities to address liquidity split.
Proposals – Main debate
Proposal 23:
Original: The use of night-time settlement is optional
Suggested review: All CSDs are expected to maintain the full T2S schedule
(including both daytime and night time).
Strong majority in favour of review. Not yet agreed
Main points
•
If my market does not currently require night-time settlement, why will
it do so in 2013?
•
Externalities: If one CSD closes during part of the schedule it delays
settlement for users of other CSDs (for cross-CSD trades)
•
Competitive pressure: T2S will provide night-settlement in any event;
restricting the offer to their users has competitive implications for a
CSD.
Proposals – Main debate
Proposal 30:
Original: Instructions can either be matched in T2S, or they can enter T2S already
matched.
Suggested review: Matching should only take place in a central point: in T2S. An
exception to this are pre-matched instructions from exchanges, trading
platforms and CCPs which may enter T2S already matched.
Not yet agreed
Main points
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T2S needs to match in any event (cross-CSD instructions)
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TG2 proposal: Matching for indirectly connected participants can be done
by CSDs - Technically possible, but business case challenged
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Banks’ view: One matching place as close as possible to settlement
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CSDs’ view: Explore possibility to re-use their matching facilities
Proposals – Main debate
Proposal 67:
Original: Harmonisation and standardisation decisions shall be guided by the
principle of minimising the overall market impact.
Suggested review: Harmonisation and standardisation decisions shall be guided by
the principles of (1) maximising efficiency and (2) minimising the overall
market impact (in this order of priority).
Agreed
Main points
•
Efficiency first
Proposals - After the AG
32 Proposals agreed
35 Proposals not yet agreed and now assessed
by TGs
TGs will report to the AG in September
Outline
1.
2.
3.
4.
5.
What is T2S?
What can T2S do?
Expected effects of T2S on post-trading
First phase of the project: T2S governance
The project: principles and proposals.
Consultation process
6. Moving forward
Next steps (until May 2008 at the latest)
1.Finalization of the User Requirements.
2.Economic analysis: Intended to be performed at all stages of the project.
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T2S internal cost basis and the resulting cost per transaction
Estimation of the adjustment costs
Identification and estimation of any additional costs
Estimation of the microeconomic yearly savings
3.Definition of the governance structure for the next phase of the project (the
Advisory Group to initiate discussions by end September 2007).
4.Legal topics under investigation:
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Assessment of national legislative and regulatory regimes
Legal setup and governance
T2S external legal/contractual issues
ESCB internal arrangements
5.Market Consultation.
An outstanding critical issue:
The CSDs’ participation in T2S
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CSDs may opt out from T2S, but …
•
… which option would be available to users who want
to opt in while “their” CSD opts out?
•
What kind of information would the CSDs need
before deciding to join T2S?
•
What degree of CSD commitment does the
Eurosystem need before committing real money in the
project?
Conclusion:T2S should not be seen in isolation
• T2S is not enough in its own - removal of the Giovannini barriers:
harmonisation of market rules and practices.
• Compliance with the Code of Conduct: open access between all
infrastructure components in trading/clearing/settlement.
• Whole-hearted co-operation between the Eurosystem, markets
and regulators (ESCB/CESR).
THANK YOU