Philip Brown on T2S

Brown:JSC page.qxd 05/12/2013 17:49 Page 122

Journal of Securities Operations & Custody Volume 6 Number 2

TARGET2-Securities: A platform for solving
some of the key structural issues raised by
the financial crisis and its aftermath
Philip Brown
Received (in revised form): 18th October, 2013
Clearstream Banking, 42 Avenue J. F. Kennedy, L-1855 Luxembourg;
Tel: +352 2 43-3 24 25; E-mail: philip.brown@clearstream.com

Philip Brown

Journal of Securities Operations
& Custody
Vol. 6 No. 2, pp. 122–131
᭧ Henry Stewart Publications,
1753–1802

Page 122

Philip Brown is a member of the Clearstream
Executive Board and Global Head of Client
Relations. He moved to his current position from
Clearstream’s London office in 2008 where he
was general manager. Philip joined the company
in July 2005 after spending seven years at The
Bank of New York, latterly as managing director
and head of European Sales; two years at
Morgan Stanley International; and seven years at
Barclays plc. He holds a degree in banking,
insurance and finance from University College
North Wales, Bangor.

ABSTRACT
Despite the increased level of attention the
TARGET2-Securities (T2S) system is receiving from market participants, many still believe
that T2S is just a settlement system, a piece of
software that will not deliver product capabilities
fundamentally different from those available
today. It is indeed true that T2S is just a settlement platform, but it is the only platform that
allows domestic settlement and cross-border settlement to be effected in exactly the same way.
Several of the features of the platform do not
exist today in a number of incumbent central
securities depository (CSD) platforms (eg autocollateralisation, partial settlement, netting and
complex algorithms to maximise the number of
trades which may be settled given the available
cash). In addition, T2S will alter the post-trade
landscape on a permanent and positive basis,
principally as an enabler for new products and
services, but also by dramatically changing the

context within which existing products and
services are delivered. Market participants must
challenge their existing operating models and
leverage T2S in the deployment of their products, in pursuit of their wider business goals.The
level of practical and technical project adaptation
currently being undertaken varies greatly by
client segment. Research discussed in this paper
suggests that many are still trying to understand
some of the wider implications, beyond crossborder settlement efficiency, and are yet to
mobilise the necessary resources to maximise the
opportunities T2S will enable. It is a pressing
issue as the platform will be launched in phases
between 2015 and 2017. Major IT developments will have to be carried out in 2014 to be
ready for the first wave, leaving only one budget
cycle between now and then for approval of
funding for necessary adaptation.
Keywords: liquidity, collateral, funding,
settlement, capital, asset security, CSDs
INTRODUCTION
In 1995, when many European Union
(EU) countries were preparing for the
introduction of the euro, the Council of the
European Monetary Institute (EMI)
decided that all EU national central banks
should be connected to a central euro payments service by 1999. The TARGET
system linked the existing national realtime gross settlement (RTGS) systems and


Brown

became operational in January 1999, following the euro’s successful implementation. It soon became apparent that
TARGET participants needed an optimised and more harmonised service and, in
October 2002, the Governing Council of
the European Central Bank (ECB) decided
on the next-generation TARGET system:
TARGET2. TARGET2 is now the largest
RTGS system in the world, with the ECB
confirming the following figures for 2012:1
• daily average of 354,185 payments, representing e2,477bn;
• 999 direct participants, 3,386 indirect
and 13,313 correspondents; and
• average transaction value of e7.1m.
T2S was first announced by the Eurosystem
in 2006, seven years after the introduction
of the euro. It advances the notion of
Target2 on the basis that, despite the introduction of a single currency across 17
countries and the associated reduction in
exchange-rate uncertainty, the European
post-trade landscape had remained highly
fragmented from country to country.
‘Whilst regulations such as MiFID aim
to bring interoperability to the pretrade space, the post-trade arena continues to languish in silo fashion, adding
unnecessary costs at a time when financial houses large and small are struggling to make ends meet.’2
Cross-border settlement in particular is
expensive and complicated, involving
multiple intermediaries in the custody
chain. The cost of cross-border transactions in the EU is said to be ten times
higher than domestic equity transactions.3
Settlement has been a de facto national
monopoly with little or no competition
among European providers. To date, central securities depositories (CSDs) have
operated along national lines, providing

settlement and services according to
market-specific practices. There is also
increased competitive pressure from the
USA, with its highly centralised clearing
and settlement infrastructure provided by
the CSD, Depository Trust & Clearing
Corporation (DTCC) — single language,
single currency and single legal framework
— in the European market. As the world’s
largest market economy, it will remain
successful in capturing new issuance flows.
The end-to-end synthetic cost per trade in
Europe, the Middle East and Africa
(EMEA) is estimated to be four times
more expensive than in America for cash
equities and twice as expensive for cash
fixed income.4 Fragmented markets with
complicated infrastructure and patchwork
IT solutions have a very real detrimental
impact on the cost per trade.
Investors have found it difficult to consolidate asset pools, as the assets exist in a
variety of different locations and are
accessed via different chains of custodians,
sub-custodians and CSDs. This fragmentation further complicates collateral
management, making meeting one’s collateral obligations both cumbersome and a
drag on investment performance. The lack
of harmonisation on a legal, technical or
fiscal level is not only bad from a cost perspective, but it also results in a higher level
of risk for participants. These national barriers — a defining characteristic of the
existing market infrastructure — are a
practical impediment to remote access to
national clearing and settlement systems.
In late 2001, the European Commission’s
Consultation on Clearing and Settlement
— an expert group led by Alberto
Giovannini — identified and listed 15 barriers to efficient cross-border clearing and
settlement.5 The creation of a standardised
framework for settlement on the T2S platform addresses six of the 15 Giovannini
barriers and is also widely expected to
have downstream positive effects on fur-

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ther pan-European harmonisation for
income, corporate actions and tax.
Although the T2S concept was first
proposed in 2006, prior to the collapse of
Lehman Brothers, Bernard Madoff funds
and the housing bubble, it nonetheless will
dovetail with the regulatory response to
the wider financial crisis — Capital
Requirements Directive (CRD) IV 2013,
Alternative Investment Fund Managers
Directive (AIFMD) 2013, European
Market Infrastructure Regulation (EMIR)
2012, CSD Regulation (CSDR) (still
under EU consideration) etc — with the
aim of protecting the market from future
systemic risk and providing much-needed
market stability.
T2S AS A PLATFORM
The benefit T2S will bring for European
cross-border settlement is widely accepted
but it is less widely acknowledged that T2S
could bring many more tangible benefits
for providers (and their customers) if they
are able to flesh it out with additional services. One could make the comparison
between T2S and smartphones, where T2S
is comparable to the basic handset and the
additional services that really add value and
thereby optimise the user experience are
the Apps. The commoditisation of settlement will encourage CSDs to move up the
value chain and deliver new services. Today
there is no provider which could become a
pan-European sub-custodian, nor could
any CSD act as the European CSD.
Anybody aspiring to do so will need to
cooperate with other market participants in
order to prioritise the complementary business opportunities they will be able to offer,
in addition to their existing service suite,
and determine which should be self-manufactured and which would be better
achieved through smart partnerships.6 If the
earlier analogy is extended further, one
could say that participating CSDs are the

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App developers and, while they are in competition with one another, there is also
space for collaboration and partnership
deals. With the de-coupling of settlement
and asset services, the supply chain dynamics will change and become more open,
bringing the potential for greater competition and customer choice. The lack of a
single comprehensive product and the
absence of an integrated pan-European
trade processing and asset servicing platform mean that, for customers, it is important to understand which sub-products can
be combined as part of an overall suite to
feasibly add the most value.
COLLATERAL MANAGEMENT
Over the last five years, the importance of
collateral management has grown exponentially throughout the financial sector
and will continue to do so with further
regulation. The 2011 Accenture ‘Collateral
Management’ study commissioned by
Clearstream claimed that the total assets of
the global banking system are estimated to
be worth e70trn, yet the total value of
securities being used as collateral is estimated to be approximately e10trn; thus, a
great deal of collateral is not being
mobilised.

‘This suggests there is further potential
for growth in monetising unused assets
through improved collateral management.’7
In the study it was estimated that collateral
fragmentation will cost companies about
e4bn annually. This estimate is seen to be
conservative as it was made before the
enforcement of the oncoming regulatory
changes, which are expected to increase the
demand for quality collateral and also the
need to manage collateral more efficiently.
At the time, the main concern was with
meeting the demands of balance sheets


Brown

under the weight of the regulatory agenda.
Now it is considered strategically imperative to have access to quality collateral.
One of the causes of ineffectual collateral management is the inherent disconnection between CSDs regulated along
national lines to support international business. CSDs, by their nature, are national
entities, which is not a problem for their
core CSD functions, but can be for efficient collateral management. The panEuropean fragmentation of the CSD
infrastructure due to national barriers
means that the movement of cross-border
collateral to where it is required has been
expensive (both operationally and in terms
of market charges) and a largely manual —
ie slow — process. As a result, financial
institutions have been unable to manage
their collateral effectively, thus creating a
situation of excessive collateral in areas
where it is not required or a lack of collateral in an area where it is required. If a
market participant does not use a specialist
collateral management provider, they
themselves will need to move collateral
from one place to another (and crossborder) much more often than before. If
the participant is using a collateral
management provider then they may find
their assets effectively immobilised in the
network of their service provider, who
will manage them through book entry
movements on their books and records.
For domestic CSDs to truly act as
European entities, it is important for all
T2S-participating CSDs to interconnect
with each other in order to maximise
counterparty reach. It is this aspect that
elevates T2S from being a settlement platform to a mechanism actively promoting a
more harmonised European post-trade
infrastructure, facilitating seamless interoperability between CSDs. This mechanism enables individual CSDs to
interconnect through a series of bilateral
links which have been assessed for

Eurosystem credit operations. This view
should be shared by all entities looking to
provide a comprehensive T2S solution.
The link assessment could significantly
increase the workload for the ECB in terms
of processing — CSDs to CSDs within T2S
means roughly 270 links — but will be
essential in delivering a secure framework
for T2S and maximising its potential. In
September 2013, the ECB published a new
framework for the assessment of CSDs and
CSD links to determine their eligibility for
use in Eurosystem credit operations. Today,
each bilateral link is assessed separately.With
the new approach, the local regulator’s
oversight standards cover four of the nine
standards which usually would be assessed
by the ECB/Eurosystem. Adherence with
the local regulatory standard will confer
first-level
compliance
with
the
ECB/Eurosystem and only the second layer
then needs to be assessed. The new framework simplifies the former user assessment
process and avoids duplication in the conduct of oversight and user assessments
against similar standards and requirements.8
One expects that this will result in link
assessments being undertaken more quickly.
This assessment will become one of the
most important aspects of a service provider
as global custodians are measured and compared on the number of markets around the
world which they can access. CSDs in T2S
also will be measured by their network
reach. Another driver for optimising the
movement of collateral from one CSD to
another will be the number and breadth of
instruments which can be settled in T2S.
Some CSDs consider this to be of vital
importance and are planning to make eligible their entire settlement volume, giving
their customers the opportunity to consolidate all of their assets whether they are
from T2S markets or not. This will facilitate
a much bigger pool of securities available
for collateral realignment on one single
technical platform. Clearstream, for exam-

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TARGET2-Securities

Figure 1 New
collateral streams
arising through the
introduction of the
European Market
Infrastructure
Regulation (EMIR)
2012 and
Dodd–Frank 2010

CCP, central counterparty; CSD, central securities depository; ICSD, international central securities
depository; T2S, TARGET2-Securities
Source: PricewaterhouseCoopers (PwC) ‘The 300-Billion-Euro Question: Survey on the Benefits of
Target2-Securities’, PwC, Frankfurt.

ple, plans to make international debt securities (‘Eurobonds’) eligible for settlement in
T2S. If the issuer has chosen the New
Global Note (NGN) legal and holding
structure, the holder also may use the security as eligible collateral for Eurosystem
monetary policy, assuming it meets the
other requirements (as opposed to Classical
Global Notes (CGNs) which are not permitted at all).
T2S will standardise cross-border settlement: harmonised settlement processing cycles and standards will facilitate
more seamless cross-border movement of
assets. Consequently, much of the labour
and cost will be removed from the
process of moving securities across
European borders between the 24 participating CSDs in real time. Moving securities which can be used as collateral
becomes a lot easier, a lot cheaper and
they can be mobilised to markets where
they are needed, thereby eliminating the
fragmentation that characterises the
market today. This also will help participants to meet new collateral requirements
as set out under EMIR.

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Banks are faced with a dual challenge in
terms of collateral demand: because of
EMIR and the Dodd–Frank Act 2010
they must collateralise their over-thecounter (OTC) derivative activity, while,
in order to fund their activity, they either
need to go to their central bank (which
will ask for collateral) or they will need to
perform repurchase agreement (repo) with
other banks or buy-side firms which have
excess liquidity. To perform repo, banks
must have repo-able assets. The 2013 T2S
study written by PricewaterhouseCoopers
and Clearstream illustrates this point, as
shown in Figure 1.
Case study
In response to the additional collateral
requirements
under
EMIR
and
Dodd–Frank, banks increasingly are looking to mobilise assets and to increase access
to buy-side liquidity to diversify their
funding sources. Buy-side institutions, in
turn, are looking to leverage the collateral
received from banks to re-use and cover
central counterparty (CCP)/third-party
margin obligations. In some cases, this may


Brown

need to be supplemented with a collateral
transformation trade to meet the collateral
eligibility criteria of the third party. InterCSD settlement of a chain of collateral
movements can be settled in a matter of
minutes in a world with T2S.9
REDUCED LIQUIDITY CONSUMPTION
One of the most underrated benefits of T2S
is the ability to significantly reduce liquidity
consumption for settlement purposes. T2S
enables financial institutions to reorganise
their euro settlement funding arrangements. Currently, a combination of proprietary home accounts, RTGS main accounts
and sub-accounts, often accessed through a
network of cash correspondent banks, are
used by investors to make euro payments
linked to settlement obligations. If a bank is
a direct member of a CSD then today it
must reserve overnight cash for each securities market where it has settlement activity. This means that the reserved cash
liquidity is blocked overnight, locking it
from being accessed to cover other simultaneous market shortages. With T2S, investors
have the option of selecting different
arrangements for their dedicated cash
accounts (DCAs): operating one single
DCA, multiple DCAs or outsourcing completely by appointing a third-party payment
bank. If T2S users opt to use a payment
bank, there are further considerations with
regards to collateral. T2S offers only payment banks a central bank credit mechanism to support settlement. Mostly, this is
extended for free by national central banks in
exchange for ECB eligible collateral. As this
facility is offered to payment banks only, the
choice of payment bank becomes important or vital if an investor wishes to mobilise
ECB-eligible collateral that is held outside
T2S. Put simply, not all payment banks will
have sophisticated enough collateral management systems to mobilise collateral
regardless of whether it is held within T2S

or outside it. This is part of a broader new
perspective on credit attached to T2S. T2S,
and the principle of ‘settlement netting’ that
underpins its activity, enables market participants to be less reliant on the credit facilities offered by their custodians.
Traditionally, credit has been used by custodians as a competitive service and is normally bundled with custody or transaction
fees or, less commonly, priced on a standalone basis. Going forward, settlement via
T2S will lead to reduced credit consumption and an unbundling of credit-related
charges.
For custodians themselves, there can be
another benefit. Global custodians without
highly efficient cash projection engines
often leave idle cash at their sub-custodian
as a ‘buffer’, or because they did not accurately project all of the activity taking
place on a given day. As an asset, this must
be included in their risk-weighted assessments. T2S should significantly reduce the
amount of idle cash balances. Similarly, for
customers, in the current interest-rate
environment, the cost of maintaining such
buffers is relatively low, but at higher interest rates in the future this could increase
significantly. There is also opportunity cost
to consider, as having cash pooled in one
place will enable customers to do more
business with the same resources.
Providers that can offer customers sophisticated products may generate higher
returns in supporting repo activity, for
example, than a provider with no valueadded services having to rely heavily on
net interest income. These are significant
developments for market participants and
important considerations when assessing
the overall ‘cost’ of T2S. The pooled
account will enable T2S participants to
manage and net all settlement-related cash
movements in one single account. Instead
of having to provide funding for a transaction while waiting for cash from another
to settle, both transactions now can be

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TARGET2-Securities

processed in the same settlement cycle,
reducing the need for liquidity.
CAPITAL REQUIREMENTS SAVINGS
In September 2013, the European Banking
Authority (EBA) published its fourth
report of the Basel III monitoring exercise
on the European banking system.10 This
exercise, run in parallel with one conducted
by the Basel Committee on Banking
Supervision (BCBS) at the global level,
allowed the gathering of aggregate results
on capital, risk-weighted assets (R
WAs), liquidity and leverage ratios for banks in the
EU. Compared to the previous exercise,
based on 30th June, 2012 data, the report
estimates a decrease in the capital shortfall
of e29.1bn (equivalent to 29.3 per cent), ie
European banks have made significant
progress in boosting their capital positions
and thus strengthening the overall resilience
of the EU banking system as a result of the
EBA recapitalisation exercise. There is a
consensus over the growing need to consolidate pools of collateral and manage the
existing ones efficiently.
Clearstream’s study with PwC comprised a series of internal research studies
supported by in-depth focus interviews
with a number of market participants and
a quantitative estimate of the possible
effects of Basel III rules on participants if
these rules are expanded to cover noncommitted intraday credit facilities offered
by custodians.11 According to PwC partner, Thorsten Gommel:

‘We don’t disagree that most of the
credit extended for settlement purposes
intraday doesn’t count when it comes
to calculating capital adequacy ratios,
but we see a significant risk this will
change under Basel III when banks will
have to prove their funding is solid.’12
To quantify the capital savings potential,

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Clearstream analysed the liquidity savings it
could make itself (15 per cent) via a pooled
cash account, based on millions of crossborder settlements in Germany, France, the
Netherlands, Belgium and Italy. It then
transposed this to the broader settlement
volumes in the eurozone. The study indicates that the amount banks could save represents 11 per cent, or e33bn, of the
e295bn capital shortfall the Organisation
for
Economic
Co-operation
and
Development (OECD) estimated using
2011 year-end positions.13 Harmonisation
of settlement cycles in T2S is expected to
increase the netting potential even further
and will reduce the margin requirements at
CCPs by one-third.14
ASSET SERVICES
With a backdrop of settlement commoditisation, increased competition and market
consolidation, the operating model for asset
services becomes critical for CSDs. For historical reasons, a number of CSDs offer
basic asset services for their domestic
market, perfectly adequate within the context in which they were being provided, for
example, with participants having long
accepted that bilateral relationships with
issuers/issuers agents and intermediation by
agent banks were a necessary fact of life.
Indeed, many local specificities are best
handled by the domestic CSD who has
close relations with the relevant market
bodies and long-standing history, and
understanding of domestic market nuances.
However, while this may be true for
Issuer CSDs, there are only a limited
number of CSDs who can credibly operate in the international space as Investor
CSD. Asset servicing for non-domestic
securities is a specialist, high-cost business
based on economies of scale. Issuer CSDs
who, even today, have gaps like tax services, proxy voting and even mainstream
corporate action processing, will find it


Brown

virtually impossible to build a credible inhouse capability before T2S goes live.
Those lacking these services may look to
partnerships to help them complete their
asset services product offering post-T2S.
In a number of recent interviews,
Clearstream validated with customers that
asset servicing remains one of the most
important concerns, because T2S does not
support asset servicing but it will fundamentally change the traditional relationship
between settlement and asset services. In
processing terms, today asset servicing and
settlement are inextricably linked at the
point of manufacturing but the possible separation of transaction flow, with the introduction of T2S, will have a direct impact on
business. It is something that everyone in the
industry should now be addressing during
discussions with their provider.
Clearstream have taken the opportunity
to streamline the end-to-end asset services
flow and create additional value for customers through local market partnerships.
The local partnership model will redefine
roles
and
responsibilities
between
Clearstream and their local partner, the key
agent banks in their respective markets. In
removing some of the duplication in the
end-to-end process, a number of benefits
can be passed onto the customer including:
• improvement of deadlines;
• Increased proximity to market, timeliness of notifications;
• local expertise and market advocacy;
• reduced operational risk, as double processing is avoided.
It is widely forecast that T2S will act as a
catalyst for harmonisation in the asset
services space, though it is expected to be
limited to transaction management in the
short to mid-term. Different legal, tax and
market regimes will, however, need to be
addressed before progress will materialise
beyond market claims and buyer protec-

tion. Deloitte Luxembourg offer the following prediction:
‘The ECB and regulators still have a
significant amount of work ahead of
them to meet this objective in the
coming years. It is widely recognised
that asset servicing is a complex area
with important differences in market
practices, both across financial instruments and market players. Hence we
can legitimately assume that the full
harmonisation process of asset servicing
will take many years and will probably
not occur before 2020.’15
Given the complexity and risk inherent in
the asset services space, and the difficulties
in achieving harmonisation as identified
above, customers will need to critically
analyse and find their own tipping point
for the trade-off between the benefits of
consolidation and their servicing needs.
AIFMD AND DEPOSITARY BANK
RISK
Naturally, global custodians also are taking
this opportunity to review whether their
existing network model makes sense in a
post-T2S world. Post Lehman/Madoff
asset protection within their custody chain
has become a critical factor. What Lehman
Brothers taught us was that, even if assets
could be recovered, customers had no idea
how long it would take. Customers now
want to know that they can access their
assets at all times. Today, the interoperability between CSDs is inefficient: it is necessary to open accounts with each issuer
CSD, of which there are more than 30.
Practically, the cost of doing this is too
high and would require significant operational support to maintain. There is
increased market demand for direct CSD
holdings. Customers want to have assets in
an account in their own name — operated

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TARGET2-Securities

or not by an agent bank — to remove the
risk (and the requirement to allocate capital against that risk). AIFMD and the
Undertakings for Collective Investment in
Transferable Securities (UCITS) V directive also are driving factors for a rethink.
AIFMD reverses the burden of proof onto
the custodian in the event of the loss of an
asset — ie they have to prove they were
not negligent — and full legal responsibility and liability for securities held by an
alternative investment fund falls on the
designated depositary bank. PwC sees this
as a significant risk ‘since the equity capital
of custodians is usually very small compared to the sum of assets they hold under
custody’.16 In order to assess the amount
of capital necessary to be allocated to
cover this liability, one must evaluate the
potential loss. This is problematic since this
is tail-end risk — an extremely rare occurrence of a potentially large loss.
The narrow exemptions permitted
under AIFMD are no longer possible
under UCITS V; however, if assets are held
with a securities settlement system (SSS)
then, under the terms of AIFMD, this is
not considered ‘delegation’. Therefore,
custodians can reduce their liability exposure in T2S markets by centralising safekeeping of assets across fewer CSDs,
leveraging the CSD to CSD links that
some CSDs intend to implement.
Custodians are looking at different access
models to achieve AIFMD relief, which
includes the setting up of their own CSDs,
or partnering with an existing CSD.
Understanding the impact of these
changes to CSDs and their operational situation is critical in order for a customer to
know what questions to ask.
• ‘As an institution, will your T2S access
point allow you to connect to as many
other CSDs as you need?’
• ‘Will these links be assessed for
Eurosystem collateral eligibility?’

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• ‘Is your future partner able to invest in
their services to provide a service sufficiently flexible and scalable to your
needs?’
ISSUANCE
Issuance plays a particularly interesting role
within the context of T2S as it affords
CSDs — which, it should be remembered,
will lose their traditional settlement activity
— the opportunity to become a consolidated point of issuance for Europe. A service provider which can offer a
pan-European distribution model, accompanied by the right service levels and access
to market intelligence, may be able to
attract more than just government paper,
traditionally issued in the local market for
obvious reasons. In a post-T2S world a
domestic issuer will be able to have a single
global issue deposited with a domestic CSD
and distribute it through T2S to investors in
any other T2S jurisdiction while continuing to benefit from central bank primary
market funding. This will resonate globally
with issuers wishing to raise debt from the
European capital markets. CSDR will further reinforce this type of concept and
dovetails with T2S to provide issuers with a
genuine choice of CSD based on competitive factors. Custody follows issuance.
Having an integrated platform with issuers
and investors in the same place will bring
lower costs. Those CSDs which can bring
together state-of-the-art issuer services and
investor services could become the first
choice pan-European service provider to
issuers and investors alike.

CONCLUSION
Clearstream customers estimate that they
are spending approximately 70 per cent of
their budget on keeping up with the regulatory tsunami and are asking themselves:
‘How will I be able to sustain myself and


Brown

generate margins in the future?’17 The
same regulations also are forcing financial
institutions to revisit their business models.
Should customers focus on scale for
growth, flexibility to add products and
services or just primarily on reducing
operating costs? When people try to make
a T2S business case today, savings from
cross-border settlement costs are still the
central justification. There is a preoccupation with the settlement cost question:
‘Will it or won’t it be 15 cents?’ The settlement cost versus build or adaptation cost
comparison does not look favourable, but
this is like buying a 32Gb smartphone just
to make telephone calls. T2S creates a
unique base from which to deliver the
services to meet those regulatory challenges; it is inherently linked to these
questions and should be at the core of customers’ strategies for defining a new operating
model
to
meet
their
regulatory-driven
business
model
demands. It can be a platform, a genuine
opportunity for solving some of the key
structural issues raised by the financial
crisis and its aftermath.
Addendum
Since this paper was written, the EU
changed the wording of a paragraph in the
recent draft version of UCITS V, apparently resulting from their concern over the
interpretation of the same section in
AIFM directive. Clearstream remains
highly engaged with regulatory bodies at
National and European level in order to
clarify the implications for both UCITS V
and AIFMD and take this forward.
REFERENCES
(1) See: http://www.ecb.europa.eu/paym/
t2/html/index.en.html, (accessed 25th
September, 2013).
(2) Cognizant, (2012) ‘Target2-Securities
Platform: Implications for the Post-Trade
Arena’.

(3) European Central Bank (2011) ‘Settling
Without Borders’, November.
(4) In discussion with Jared Moon,
McKinsey & Company, September 2013.
(5) The Giovannini Group (2001) ‘Cross
border clearing and settlement
arrangements in the European Union’,
‘First Giovannini Report’, November,
available at: http://ec.europa.eu/
internal_market/financialmarkets/docs/
clearing/first_giovannini_report_en.pdf,
(accessed 25th September, 2013).
(6) Brown, P. (2012) ‘Smart partnering: The
next evolution in the post-trade space’,
Journal of Securities Operations & Custody,
Vol. 5, No. 2, pp. 98–109.
(7) Accenture (2011) ‘Collateral
Management: Unlocking the Potential in
Collateral’.
(8) See: http://www.ecb.europa.eu/pub/
pdf/other/frameworkfortheassessmentof
securitiessettlementsystems201309en.pdf?
8cc2d9d99dc95b97862fa4c5f23a9577,
(9) PricewaterhouseCoopers (PwC) ‘The
300-Billion-Euro Question: Survey on
the Benefits of Target2-Securities’, PwC.
(10) See: http://www.eba.europa.eu/-/
eba-publishes-results-of-the-basel-iiimonitoring-exercise-as-of-end-2012,
(11) This helped to inform PwC, ref. 9.
(12) http://www.globalcustody.net/news/
SIBOS_2013__Is_T2S_European_Savior
_or_Windowdressing_for_Basel_III__
4798, (accessed 25th September, 2013).
(13) See: http://www.oecd.org/finance/
financial-markets/Deleveraging%20
Traditional%20versus%20Capital%20
Markets%20Banking.pdf (p. 22) (accessed
2th September, 2013).
(14) In discussion with Paul Bodart, member
of T2S Board, October, 2013.
(15) Deloitte Luxembourg and Association
des Banques et Banquiers, Luxembourg
(2012) ‘T2S and regulatory framework
are shaping a new post-trade world’
Association des Banques et Banquiers.
(16) PwC, ref. 9 above.
(17) Clearstream, ‘Shaping the Future’
workshops and PwC, ref. 9 above.

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