T2S: Settling without borders in Europe Meeting with Latvian NUG Riga, 31 August 2011 Mr Jean-Michel Godeffroy T2S Programme Board European Central Bank 0
What is T2S? What is T2S? A single IT An entirely A solution to technical platform new concept the current fragmentation Harmonised Multi-currency Commoditised DvP dimension in CeBM Reversed Core, Neutral integrated model Borderless securities settlement 1
What is T2S? A multi-currency platform ECOFIN asked the Eurosystem not to limit T2S to the euro area T2S has been designed as a genuine multi-currency system from its outset a generic and flexible system, which handles all currencies on an equal basis Larger participation means exploitation of economies of scale : win-win scenario for all euro and non-euro area participants Non-euro area NCBs participating in T2S will have the same rights regarding their currency as the Eurosystem will have regarding the euro The legal set-up of T2S gives guarantees to CSDs and non-euro area NCBs having their accounts in T2S Non-euro area stakeholders associated in the governance bodies at all levels Transparency implies that no new development could be decided without public debate T2S and harmonisation go hand in hand greater benefits if practices are harmonised across the whole of Europe 2
What T2S is not? T2S is not a CSD but a service offered to CSDs for settlement only (i.e. change of ownership among investors) T2S does not offer CSD services like Notary function (i.e. registration of issuer indebtedness and investor holdings) Custody and asset-servicing function (e.g. calculation of coupon payments, execution of reorganisation, etc., but supports settlement of the entitlements) Banking function (e.g. lending and borrowing; only in some (I)CSDs ) 3
What is the aim of T2S? Reduce collateral/liquidity needs for users Cross-border Harmonise settlement as settlement to The inexpensive as make Europe a domestic 5 big wins true Single Market of T2S Create new Users will only need an opportunities account at one CSD to for settle all securities competition transactions 4
T2S community 30 CSDs are working towards joining T2S SITEME NBB-SSS CIK Clearstream Banking Ffm INTERBOLSA NEGICEF Iberclear – BME Group KDPW OeKB SIX SIS LTD Clearstream Banking Lux Euroclear UK and Ireland EVK BOGS VPS HELEX Euroclear Sweden AB Monte Titoli S.p.A. Euroclear Finland Oy CDCP CSD of Lithuania, plc KDD Euroclear France S.A. VP SECURITIES Cyprus Stock Exchange Malta Stock Exchange plc Latvian Central Depository KELER Depozitarul Central S.A. Icelandic Securities Depository 5
Where we stand? Contractual negotiations with CSDs and non-euro CBs The negotiations with CSDs on the Framework Agreement (FA) - Negotiations on the FA were launched in 2009 - The ECB Governing Council will approve the FA in October 2011 and offer it to CSDs for signature thereafter The negotiations with non-euro central banks on the Currency Participation Agreement (CPA) - Negotiations on the CPA were launched in 2010 - The ECB Governing Council will approve the CPA in October 2011 and offer it to non-euro central banks for signature thereafter The Programme Board will propose the principles for treating the “late joiners” (i.e. CSDs and NCBs that do not sign FA/CPA in 2011) for discussion in the next Advisory Board CSDs and non-euro CBs’ participation in T2S is voluntary 6
Where we stand? T2S pricing policy ECB Governing Council decided to fix the DVP price at 15 cent per instruction for the period Sept 2014 to Dec 2018 Commitment not to increase T2S fees by more than 10% per year between 2019 and the end of the cost recovery period, i.e. September 2022 This pricing policy is subject to the following conditions: – in addition to the euro settlement volume, non-euro currencies add at least 20% to the total volume – securities settlement volume in the EU is no more than 10% lower than the volumes projected by the T2S Programme Office, which are based on information provided by market participants – tax authorities confirm that the Eurosystem will not be charged VAT for T2S services ( confirmed ) T2S Price List: http://www.ecb.europa.eu/paym/t2s/pricing/list/html/index.en.html The T2S Programme Board aims at further lowering settlement prices below 15 cents after 2019 7
Where we stand? T2S functional and non-functional aspects Two-month public market consultation on User Detailed Functional Specification (UDFS) finished at the end of May 2011 UDFS v1.2 will be published in Q4 2011 Connectivity to T2S will be supported by - Two licensed value-added network service providers (NSPs), selected in two logical steps by end 2011 - 1 st step: exclusion of NSPs on the basis of insufficient financial strength and experience in the provision of similar services - 2 nd step: awarding of licenses on the basis of their lowest maximum price charged to the community of directly connected actors - One dedicated link provider (value added connectivity services to be implemented in T2S and by users) - The selection of preferred approach for the basic connectivity provider is ongoing All CSDs and non-euro CBs connecting to T2S are applied with the same public and non-discriminatory access conditions (e.g. access to T2S services, applied fee schedule, etc.) 8
How do I benefit from T2S? T2S will produce dynamic effects, resulting in more cross-border business T2S will benefit all market participants Investors Custodians CSDs Issuers Benefits of T2S 9
How do I benefit from T2S? CSDs Access to a technologically advanced, state-of-the-art, and highly robust settlement engine Ability to take advantage of economies of scale from pooling together settlement volume across the whole of Europe New business opportunities and access to new markets for asset-servicing Long-term savings from efficient re-shaping to T2S 10
How do I benefit from T2S? USERS Same processing and reduced settlement fees for all transactions (no need to distinguish between cross-border and domestic) Possibility to access all securities from potentially one CSD Possibility to optimise collateral and liquidity management Reduced back-office costs by streamlining interfaces and centralising settlement activity New business opportunities and access to new markets for asset-servicing 11
How do I benefit from T2S? MARKETS Fostering a higher level of competition in Europe’s post-trade industry Contributing to harmonisation of clearing and settlement in Europe, thereby promoting a Single Market for financial services Reducing the cost of capital for firms, thus contributing to economic growth Positively impacting financial stability by reducing settlement risks on cross-border transactions Offering easy portfolio diversification to investors Enabling issuers to easily reach European investors 12
Irrespective of whether an European market is settling in or out T2S, any market, CSD, trading platform, bank, broker, fund manager, issuer, investor will face opportunities and changes in current status and in the way doing business potentially already before T2S Go-Live in 2014/2015 13
The role of T2S T2S implements the agreed European-wide market practices and stimulates the need for further practices and agreements Catalyst/Stimulator Contributions Requirement for further Removal of Giovannini harmonisation and barriers* standards Adoption of agreed practical solutions to maximise common standards and the benefits of T2S practices expanding on the agreement already achieved in the market * Alberto Giovannini led a group that defined 15 technical, legal and fiscal differences between EU/EEA countries in 2003, which make it difficult for service providers to extend their reach beyond their home country 14
A change is inevitable … … consider how to implement the required change, assuring at least the existing level of efficiency and lowering operational risks and barriers for foreign investors investing into local securities and for local investors investing into foreign securities Aspects agreed as Aspects coming European market from T2S system practices and principles specifications in T2S for settlement and related services 15
What is expected from me soon? Consider possible opportunities and challenges that T2S will bring about to your institution/company, to the Latvian market Consider different scenarios and their impact on whether and when the Latvian CSD will sign the FA Be ready to decide together with the Latvian community (National User Group) on joining T2S in order to support your CSD in its next steps in and after November 2011 Think of how to succeed in the new situation Plan your adaptation 16
Conclusion Today vs. Tomorrow - 19 CSDs in euro area - 2 ICSDs Market participants - another 16 CSDs in the CURRENT links EU EU settlement Custodians landscape: Non-integrated cross- CSD C border settlement CSD E CSD A CSD B CSD D CSD x Custodians Market participants FUTURE Custodians direct access EU settlement landscape with T2S: CSD B CSD C CSD x CSD A One integrated settlement process (domestic and cross-border) One technical platform used by CSDs for securities settlement 17
Thank you for your attention www.t2s.eu
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