Enhancements to the Eurosystem’s market infrastructure

TARGET2 and TARGET2-Securities as well as the realisation of the Single Euro Payments Area (SEPA) by the banking industry mark important steps on the road towards an integrated financial market infrastructure in Europe. Decentralised and fragmented settlement structures were transformed into harmonised payment and securities settlementservices. Nonetheless, the Eurosystem’s market infrastructure has even more potential to further deepen the integration of the European financial market. The Eurosystem first thought about how this could be achieved in its "Vision 2020" and finally drew up three project initiatives to enhance its market infrastructure – Consolidation of TARGET2 and TARGET2-Securities, instant payments (TARGET Instant Payment Settlement, or TIPS), and the Eurosystem Collateral Management System (ECMS).

In the meantime, the Governing Council of the ECB has taken a decision to realise all three projects. On 21 June 2017, it took the decision to develop an instant payment service (TIPS). The ECB Governing Council gave the go-ahead for T2/T2S Consolidation and ECMS on 6 December 2017.

The three projects are a response to the very rapid pace of change in payments and securities settlement, the need for technological modernisation, the necessity of further improving cost-effectiveness and the need to improve liquidity management (including harmonised and efficient collateral management).

The overarching objectives of the enhancements are as follows.

  • Efficiency by consolidating the technical infrastructure and optimising the existing services for market participants (including lowering operational costs)

  • Innovation by improving the range of services to match market requirements, new business developments, technological innovations, cyber security and greater legal (and supervisory) requirements

  • Contribution to further financial market integration and harmonisation as part of the capital markets union planned by the European Commission.

Areas in which enhancements are taking place –
an overview

Consolidation of TARGET2 and T2S

The objectives are the technical consolidation of the two platforms and an expansion of RTGS services. The aim of technical consolidation is, amongst others, to increase efficiency, exploit synergies and lower operating costs. In addition, cyber resilience is to be improved, and the latest communication standards (ISO 20022) and technologies are to be integrated. In particular, the consolidation project makes it possible to integrate the Eurosystem's market infrastructure related services. This will further strengthen and optimise the interconnectedness of the various TARGET services. T2/T2S Consolidation aims to provide multi-currency capability and to optimise participants’ liquidity holding and management. The existing range of services in the area of individual payments and liquidity management is to be further improved, taking the current requirements of the market into account.

Even before the start of the investigation phase, the core components and possible potentials of the future RTGS services offering were therefore elaborated in close cooperation with the market and the market was consulted about the user requirements, which have now been formulated, prior to the realisation decision being made.

Instant payment settlement

As regards the execution of real-time retail payments, known as instant payments, the Eurosystem has, through consultations and dialogue with market participants, determined that a pan-European service to settle such payments is needed. The TARGET Instant Payment Settlement (TIPS) service ensures the immediate settlement of instant payments in secure central bank money. In addition, the fact that TARGET2 has a broad circle of participants can be utilised to ensure all potential users are reached. With the introduction of TIPS, the operating times will also be extended (24/7/365). Here, too, the Eurosystem has drawn up appropriate user requirements in close cooperation with market participants. At its meeting on 21 June 2017, the Governing Council of the ECB gave its approval for TIPS to be realised. This means that as of November 2018, instant payments can be settled in central bank money via the Eurosystem’s market infrastructure.

Eurosystem Collateral Management System (ECMS)

In the areas of collateral management and safe custody account management, the Eurosystem central banks currently still run their own applications. The intention behind developing a joint, integrated collateral management system on a Eurosystem market infrastructure is to reap benefits in the form of greater efficiency, harmonisation and cost savings and to create a joint platform to mobilise and manage collateral for Eurosystem loans. A first step in this direction was to conduct a stocktake of the procedures currently in use within the Eurosystem’s central banks. Based on this stocktake, the next step involved is to draw up harmonised functions and services to be implemented within the ECMS.

At its meeting on 6 December 2017, the Governing Council of the ECB gave its approval for the ECMS to be realised. With the ECMS, the management of collateral in connection with the Eurosystem’s credit operations will, from November 2022, be integrated onto a central technical platform for all the functions that have been harmonised by that point. The monetary policy counterparties will receive access to the collateral management system via a single gateway across all central banks and will benefit from a much simpler and more efficient procedure for mobilising collateral across borders.