How will Target 2 Securities affect the European securities landscape?

Abstract

This paper provides an overview of how the European Central Bank’s Target 2 Securities (T2S) system will affect the various actors within the trading value chain. Through a discussion of the benefits and current obstacles, the paper lays the foundation for an exploration of how T2S may change the terms of engagement for market participants, whether they be a part of the market infrastructure, agents facilitating access to that infrastructure or users of it. In particular, the paper considers the impact on national central securities depositories (CSDs) and concludes that the market must not pursue cost reduction at all costs. The health and efficiency of the financial system is important, but its ability to withstand systemic shock is paramount. A balanced, market-wide view of how to ensure longevity of robust risk management and scalable systemic resilience must be found.