In October, we hosted events in Milan and Paris focused around one of the hottest topics of the moment, TARGET2-Securities, more commonly known as T2S. With over 80 attendees in Milan and 50 in Paris, the levels of interest and participant engagement at both of these half-day events were very high.
The two events had as a common objective to highlight and encourage discussion on some of the many open questions and challenges that securities market participants are still grappling with on the road to T2S. What are the benefits that can realistically be expected from T2S? What will the real impact be in terms of cost/benefit? When will market players really see a return on investment? What will happen to the relationship between CSDs, ICSDs and large custodian banks? Will they end up competing with each other? What kind of services will be offered, by whom? Who will connect directly to the T2S platform, and why? What will the Italian and French securities markets look like post-T2S? What is the best strategy to adopt and when do players need to start taking action?
Despite being so far down the line, there remains a climate of uncertainty around the project for some market participants, with many an answer still not found to open questions. Whilst SWIFT is not in a position to answer to all of these questions, by creating a platform to share information and experience and exchange views and opinions, our aim is to help our customers and the European securities market as a whole to engage in regular and constructive dialogue aimed at finding common solutions to common problems.
Michele Bernardi, Senior Vice President, Relationship Management Europe, Clearstream, representing both the German CSD and the ICSD, highlighted how challenging the T2S timeline is and how important it is that, despite tight IT budgets and the burden of cost imposed by new regulation, that market players explore the advantages that the new model can offer. Settlement costs and revenues will be compressed while competition will move to other fields such as Asset Servicing and Collateral Management, areas where Clearstream intends to further build onto its already strong position.
Franco Carulli, Securities Country Manager, Citi Transaction Services Italy explained not only do they see the implementation of T2S as a way of further enriching their relationships with existing clients, but they also see it as a great opportunity to offer their already large and diversified range of services to many potential new clients.
BNP Paribas Securities Services, represented by Dario Locatelli, Head of CSC product management Italy, said that they are 99% sure they will connect directly to T2S while having multiple links with the CSDs, mainly for asset servicing activities. For them T2S represents both a threat and an opportunity since the competitive landscape will change, as will customer purchasing behavior. It is therefore essential to take these new aspects into account and make sure, when adapting one's service offering , that it adequately addresses new needs. BNP Paribas are confident that their global presence, scalability and all the work that they have done and still have to do will assure them continued success and leadership in the post T2S world.
Domenico Petullà, Head of Back Office & Finance, ICCREA, explained that as a cooperative of banks, they believe that they have an obligation towards their affiliates to offer them the possibility to link directly to the rest of Europe. As a result, they are fully ISO 20022 enabled and will be analyzing the costs of a direct connection to the T2S platform before taking the final decision.
ICBPI, the other hand, have for now excluded the possibility of connecting to T2S directly. Whilst they are currently analyzing their CSD links and service coverage, their analysis so far has shown that with their current volumes, a direct connection would not be desirable or make financial sense, explained Paolo Callegaro, Head of Operations Services and a member of ICBPI's Securities Services management team.
Following Bonnier's presentation, Valérie Urbain, CEO Euroclear France looked at T2S from the CSD perspective, explaining that T2S will have significant impact on CSDs. Many of the impacts are positive, as is the T2S long-term ambition, but the development costs and revenue impacts on CSDs mean that they will need to make a number to changes to their strategy and service offering to remain competitive. T2S is also a catalyst for further harmonization in areas such as corporate actions and market practices. Euroclear's strategy is to adapt its service offering to provide its customers with as much choice as possible, with a single point of access to settlement in both central bank money and commercial money, a complete and wide ranging asset servicing offering geared to a market that is constantly evolving, and a single, global collateral pool.
Alain Pochet, Head of Clearing, Custody and Corporate Trust Services, BNP Paribas Securities Services France and a member of the SWIFT board, explained that whilst T2S is indeed a significant change, it is worth remembering that there is more to the European Securities landscape than the settlement layer and that it is a market of moving parts, with changes happening on all layers, from trading, to clearing and then on to cash and securities settlement. T2S is a large step towards a rationalised and harmonized EU landscape and will bring lower transaction costs and benefits to all players. It is a highly complex project due to the involvement of 4 central banks, the Eurosystem and the CSDs, which makes it a very different project to TARGET2, for example, given the number of stakeholders. Pochet also explained the excellent, long lasting and mutually beneficial relationship that exists between BNP Paribas and SWIFT. BNP Paribas Group is amongst the largest SWIFT users worldwide and Securities Services accounts for around 70% of its SWIFT volumes. They use SWIFT in all 22 of the countries that they cover and also maintain a close relationship with SWIFT for the promotion and adoption of ISO standards.
Taking over from Pochet, Philippe Bellande, T2S Project Sponsor, Societe Generale Securities Services, stated that T2S will eventually deliver a single technical platform, a unique standard (ISO 20022) and a single operational day. There are still some fiscal and legal obstacles to overcome, but it is a very large step in the right direction. T2S will impact market participants in three main ways, he explained, in terms of platform, organization and service offering, and the costs for each organization are very different as some are already have a pan-European organization whilst others are not. Bellande also classified the risks of T2S in three categories: project risk, financial risk and systemic risk and went on to give a brief explanation of each of these. Concluding his presentation, he said that T2S will achieve, in the securities market, the same scale of changes as the cash markets saw with the introduction of TARGET at the end of the 1990s and whatever uncertainties may remain, its implementation is inevitable and it is up to each and every market participant to transform his significant change into a real opportunity.
SWIFT also took the opportunity at both events to go over the SWIFT offering for T2S, highlighting the many benefits of using SWIFT network to connect to T2S and the SWIFT consulting and training services available to help our customers understand the impacts of T2S and the opportunities that it creates. Further information on this can be found on our T2S page on this website or by contacting your local SWIFT representative.