In Europe’s securities market, investors typically hold securities with national central securities depositaries (CSDs) through custodian banks. CSDs are responsible for the final phase in a trade, when transactions are confirmed and exchanged for cash, and hold the liquidity for these securities. As there are more than 30 CSDs operational in Europe, which have local legal standards, propriety messaging protocols and different settlement deadlines, there is a complex web of fragmented liquidity and standards that the European Central Bank (ECB) aims to smooth through a single IT platform on which securities settlements take place. That platform is known as Target2-Securities (T2S).
T2S is a single settlement system for all European securities – bonds, equity, funds – meaning CSDs will have to outsource the settlement part of their business to the ECB. T2S will be linked to the dedicated central bank cash accounts of market participants – the so-called Target2 (T2) – with the aim of increasing the velocity of the settlement and decreasing the collateral need. “This change is a new philosophy for the securities industry,” says Jean-Michel Godeffroy, chairman of the T2S programme at the ECB.