Target2 Securities is not going to go away

Having opined at length about corporates and payments at this year's Sibos conference in Boston, I thought it was time to focus on some of the securities issues being raised at this year's event.

Despite there being negligible representation at the conference from investment managers, some of the vendors on the exhibition floor that sell in the securities services space, feel that the securities sessions, particularly those on derivatives processing and the future of the industry have encouraged a high level of debate.

Well all you investment managers that did not come to Boston, you have apparently missed out on a scintillating debate. One debate that continues to rage at this year's Sibos is Target2 for Securities (T2S) which saw Jean-Michel Godeffroy, director-general, payment systems and market infrastructure, European Central Bank, nervously hovering around Euroclear's stand last year at Sibos in Sydney.

The debate around T2S this year does not appear to have really moved on, with the ICSDs Euroclear and Clearstream still asking for further clarification around the ECB's proposal for settling securities in central bank money using its existing Target 2 system.

Euroclear was obviously hoping that its Single Settlement Engine encompassing five markets would be enough to appease the regulators, and everyone else including agent banks and national CSDs were probably hoping that T2S would just go away.

Well, that doesn't look likely it seems and national CSDs and local agent banks are contemplating what the future holds for them if T2S goes ahead.

If T2S is implemented, there will be clear winners and losers," said Pierre Slechten, CEO, Euroclear France. "The implementation of T2S will lead to further consolidation of CSDs in Europe and cause us to readdress our strategy in terms of moving up the value chain in custody."

As T2s proposes to replace the settlement engines of existing CSDs with a joint settlement engine, there was some suggestion that local CSDs and agent banks could team up to deliver new business services. "T2S relies on CSDs so CSDs will not disappear," said one speaker.

Katja Rosenkranz, member of the executive board, business strategy, Clearstream, said that those CSDs and agent banks that did not change their business models were likely to end up out of business.

Despite calls for the Eurosystem to join forces with other market harmonization initiatives such as Euroclear's SSE, Rozenkranz said T2S was the only solution that allowed for integrated settlement in central bank money. However, Slechten of Euroclear suggested there was likely to be some overlap with Euroclear's Settlement of Euronext-zone Securities initiative.

"I would be surprised if the T2S model does not end up looking like the model that we have developed for ESES. It is not sharing a platform, but it is sharing a view in terms of harmonisation."