TARGET2 is live

Start of a new era for high value payments in Europe

TARGET2, the new RTGS system for the Euro, went live on 19 November 2007, replacing the existing decentralised TARGET system with a single technical platform and providing users with a harmonised payment service throughout Europe.

The new payment system offers centralised processing, reliability, high security and contingency, extensive functionality and payment processing optimisation. It can be considered as one of the most powerful RTGS systems in the world.

For the launch, the central banks and their national user communities connecting to the new system have been split into three groups, each with a different migration date. The first wave of countries includes Austria, Cyprus, Germany, Latvia, Lithuania, Luxembourg, Malta, and Slovenia. Together, they represent more than half of the expected payment volumes.

According to Oreste Di Francesco, TARGET2 business manager, SWIFT, “TARGET2 represents a significant improvement in high value payment settlement efficiency, facilitated by using a single state of the art RTGS platform for all Euro payments across the Euro area, and even beyond.”  Furthermore, TARGET2 connects its direct participants with the full set of SWIFTNet messaging services - SWIFTNet FIN, FIN Copy, InterAct, FileAct and Browse - associated with a mix of SWIFT standards MTs and MXs.

Benefits for all parties

Participants benefit from enhanced operational efficiency and reliability thanks to the single shared platform. They gain improved visibility on transactions and balances thanks to real time information. And they can move from local management of liquidity pools to centralised, integrated liquidity and treasury management.

Banks’ customers are also set to benefit from TARGET2. Correspondent banks around the world benefit from enhanced clearing and settlement services from their Euro clearing banks, using the service capabilities of TARGET2. Corporate customers benefit from increased certainty, reliability, and visibility for their high-value payments execution.

A well prepared project

In 2002, the Governing Council of the European Central Bank (ECB) decided to replace the decentralised TARGET system with a technically consolidated system, TARGET2. Since then, the Eurosystem –  the owner of TARGET2 – has invested substantial efforts to ensure that the new system meets present and future expectations of the market for the real-time transfer of high-value interbank payments.

The following has been accomplished since 2002:
• 2003: Rationale for TARGET2 and proposal for a Single Shared Platform (SSP)
• 2004: Project governance and organisation, main features envisaged for TARGET2
• 2005: Detailed system specifications, and principles for pricing, testing and migration
• 2006: Preparations for the live and operational phase, final participation and pricing
• 2007: Preparation and start of testing for national central banks, ancillary systems and participants.

Collaboration is key

Migration to TARGET2 is a strategic project which goes far beyond the migration of access platform to RTGS accounts. Continued cooperation between the Eurosystem, and its users has been essential to the successful launch of the system.

SWIFT’s collaboration dates back to 2004 when it began helping set up the system with the three Eurosystem central banks – the Banca d’Italia, the Banque de France, and the Deutsche Bundesbank (3CB), who built and operate the TARGET2 platform on behalf of the Eurosystem. During this period, SWIFT has been working closely with the European Central Bank (ECB) which represents the national central banks using the platform to offer RTGS services to their banking communities. SWIFT has also been following the discussions, reviews and proposals in the TARGET Working Group which represents the European banking community.

Collaboration between central banks and the user community has also been a key success factor. The Eurosystem organised road shows, reviewed specifications and documentation, performed intensive internal tests, and ran an intensive test campaign with customers. The Eurosystem monitored the readiness of the first migration group, which was carefully validated up to and including the changeover week-end.

Lorenzo Giammo, Head of TARGET2-SSP Division, Banca d'Italia, remarks that, “An idea has become a reality thanks to the excellent collaboration between the Eurosystem, in particular the multi-disciplinary teams of the three central banks, and the positive and professional spirit of SWIFT people involved in this long and complex project.”

This, no doubt, was – and still is – a challenging and demanding project for all parties involved, which is now showing results and paving the road for new developments.

Migration phased by window

The migration to TARGET2 has been organised in three windows, each going live on different dates. Each window consists of a group of national central banks and their respective TARGET user communities.

At Sibos 2007 in Boston, Patrick Poncelet, of the European Banking Federation, and Secretary of the TARGET Working Group, confirmed that extensive and comprehensive user testing is taking place at all levels, from individual banks to connectivity with other players in a variety of scenarios. “Early and extensive user involvement in the phase leading to live operations is a great tool for adequate user preparation,” said Poncelet.

The first migration window is now over, and those countries have now gone live. The countries composing the other windows are still in full preparation, and will be ready for a smooth migration when their turn comes in the first half of 2008.

Beyond TARGET2

TARGET2 has led to synergies with other newer Eurosystem integration initiatives. Building on the centralised technical infrastructure, and drawing on the experience gained while developing and running TARGET2, the Eurosystem is currently working on user requirements for new integrated market solutions in the field of securities settlement (TARGET2-Securities), and in the field of collateral management (CCBM2). Thus, TARGET2 can be seen as the trigger, and at the same time the enabler, of new Eurosystem integration initiatives.

SWIFT will closely follow these developments, which will enable TARGET2 players to leverage their investments made for TARGET2.

More detailed information about TARGET2 can be found on the ECB’s website at http://www.ecb.europa.eu/home/html/index.en.html, and on the websites of the national central banks.