15 October 2014

Market participants embrace the direct route to T2S as 2015 deadline approaches

As activity among market participants choosing to directly connect to T2S intensifies, new SWIFT research looks at the benefits of taking the direct route to T2S and the opportunity to build new business models, access new markets more easily and deliver new services to clients, which are being explored by the first wave of pioneering Directly Connected Participants (DCPs).

Some institutions have adopted a ‘wait and see' approach to T2S, preferring to assess their response to the initiative once it is under way, whereas others have opted to become Directly Connected Participants (DCPs) provided them with a more compelling choice. The ability to connect directly to the platform offers more competition; better access to markets and therefore allows institutions to offer the best deadlines; quick reaction to settlement issues and also liquidity benefits.

As the 22 June 2015 deadline looms for the first of four waves of migration to the European Central Bank's (ECB's) TARGET2-Securities (T2S) settlement platform, SWIFT looks at how T2S will transform and affect every participant in the European post-trade landscape. T2S will deliver many benefits to users to improve settlement processing across Europe and harmonise the Eurozone post-trade settlement landscape. Budget concerns, implementation costs and availability of resources have acted as hurdles to harmonisation, but the ‘traffic light' approach of T2S, that will be introduced in a series of migration waves, will help to move all European countries involved in the same direction.

The research, which is based on consultation and interviews with a number of DCPs, states that the work of the DCP Forum, an informal group of entities that are interested in becoming DCPs, provides an example of how complex the changes required by T2S will be for these institutions. Many will have to prepare clients and be ready for each wave of migration and the testing procedures, but in the long term T2S is a catalyst for innovation and change, to help clients overcome key regulatory challenges in areas such as asset protection, collateral and liquidity management.

"As a large harmonisation project, T2S does not come without challenges for market participants. Many of the organisations that have chosen to become DCPs have done so in an environment of competing industry and regulatory initiatives. As an originator of the harmonisation process and the de facto provider for connectivity and interoperability services in the European clearing and settlement environment, the use of SWIFT's Value-Added Network (VAN) Solution for T2S means that users will not have to make significant changes to connect to T2S," said Isabelle Olivier, Head of Clearing and Settlement EMEA at SWIFT.

The paper also explains that DCPs not only have to ensure their internal processes are adapted for T2S, but they also must ensure that their clients - the ICPs - are prepared for T2S. Many DCPs have chosen to shield their clients as much as possible from the impact of T2S, but there are still changes and adaptations that ICPs must make in order to operate in the T2S landscape.

The research concludes that the main players in the custody business already have defined strategies and know where they are going in the T2S world. When T2S was first mooted in 2006, the main focus was on savings and cost benefits. Now with the platform about to be launched, SWIFT identifies that there is a realisation that T2S will deliver many benefits to users beyond cost savings.

The full white paper can be accessed here:

Taking the Direct Route to T2S: the industry view

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Last update: 
30 September 2014

Full White Paper

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