a borderless integrated platform for settling securities
TARGET2-Securities (T2S) is the name given to the Eurosystem project for the harmonised and centralised settlement of securities in central bank money. T2S is a dedicated settlement service, which means that securities custody and related services will remain a matter for central securities depositories (CSDs), for which participation in T2S is optional. The concept of T2S is based on an integrated model that combines the settlement of the cash leg in central bank money and securities settlement on a common platform by means of delivery versus payment (DVP). It is run on the Eurosystem’s Single Shared Platform (SSP), which is already used for the TARGET2 real-time gross settlement system.
Advantages and opportunities
By creating a level playing field for the settlement of securities transactions, T2S is not only a major step towards greater integration of Europe's financial markets – it also spurs competition. The harmonising effect of T2S will be felt beyond the euro area because it also allows securities to be settled in currencies other than the euro. This naturally depends on a central bank being willing to make its central bank money available for settlement in T2S. The Danish central bank, Danmarks Nationalbank, for instance, will make the Danish krone available for settlement in T2S as of 2018.
The main benefit of T2S is the scope it offers for optimising the management of liquidity and collateral. Participants use a single dedicated cash account (DCA) in T2S, meaning they can run down the liquidity buffers they hold in different markets and thereby optimise their liquidity operations. T2S also offers individual institutions a wealth of opportunities to enhance their collateral management because it is so much easier to shift collateral between the CSDs participating in T2S.
Another major advantage is that T2S facilitates settlement in highly liquid and secure central bank money. This benefit, combined with real-time settlement and shorter settlement chains, minimises post-trading risk.
The T2S project was officially set in motion by the ECB Governing Council on 17 July 2008. The Governing Council entrusted the three central banks which had already liaised on the TARGET2 initiative – Deutsche Bundesbank, Banque de France and Banca d'Italia (a team known as 3CB), plus Banco de España (4CB) – with the task of developing and running T2S. The signing of the T2S Framework Agreement in 2012 marked a major milestone in the project timeline. This document laid the legal groundwork for CSDs' participation in T2S and defined the rights and obligations of the Eurosystem and CSDs. With more than 20 CSDs now having signed up to the Framework Agreement, more than 99% of the settlement volume in the euro area will are settled via T2S since the gradual migration of the markets has been completed.
Successful internal testing of the T2S SSP by the Eurosystem was followed in October 2014 by the user testing phase involving all the participating CSDs and central banks. As part of the community testing stage, customers of each CSD and central bank are being / have been gradually incorporated into testing activities, with the participants of the first migration wave (which started testing in March 2015) leading the way.
T2S went live on 22 June 2015. Participating CSDs and central banks migrated to T2S in a total of five waves. Germany's CSD – Clearstream Banking Frankfurt AG – migrated in February 2017 together with the bulk of the German banking community as part of the fourth wave. The regular T2S migration was completed by the final wave joining the platform in September 2017. In the future, further markets with their CSDs and central banks are invited to join T2S.