TARGET2-Securities: A platform for solving some of the key structural issues raised by the financial crisis and its aftermath

Abstract

Despite the increased level of attention the TARGET2-Securities (T2S) system is receiving from market participants, many still believe that T2S is just a settlement system, a piece of software that will not deliver product capabilities fundamentally different from those available today. It is indeed true that T2S is just a settlement platform, but it is the only platform that allows domestic settlement and cross-border settlement to be effected in exactly the same way. Several of the features of the platform do not exist today in a number of incumbent central securities depository (CSD) platforms (eg auto-collateralisation, partial settlement, netting and complex algorithms to maximise the number of trades which may be settled given the available cash). In addition, T2S will alter the post-trade landscape on a permanent and positive basis, principally as an enabler for new products and services, but also by dramatically changing the context within which existing products and services are delivered. Market participants must challenge their existing operating models and leverage T2S in the deployment of their products, in pursuit of their wider business goals. The level of practical and technical project adaptation currently being undertaken varies greatly by client segment. Research discussed in this paper suggests that many are still trying to understand some of the wider implications, beyond cross-border settlement efficiency, and are yet to mobilise the necessary resources to maximise the opportunities T2S will enable. It is a pressing issue as the platform will be launched in phases between 2015 and 2017. Major IT developments will have to be carried out in 2014 to be ready for the first wave, leaving only one budget cycle between now and then for approval of funding for necessary adaptation.