T2S in 2013

In 2013, the T2S project advanced significantly in its preparations for the go-live date, which is scheduled for June 2015. Strong commitment and cooperation within the T2S Community enabled key achievements and activities to be completed in 2013. These are summarised in this annual review.

A major milestone was reached in 2013 as the 4CB (the four central banks that are responsible for developing and operating T2S on behalf of the Eurosystem) completed their development of the T2S software, including both the core and non-core T2S functions. This will allow the Eurosystem acceptance tests of the T2S platform to take place as scheduled as of 31 March 2014.

In 2013, the number of CSDs participating in T2S increased to 24, thanks to two further CSDs signing the T2S Framework Agreement, namely Bank of New York Mellon CSD SA/NV and Latvijas Centrālais depozitārijs. All CSDs progressed considerably with their preparations and started marketing their offers to the users. Furthermore, the T2S Community reached a mutual agreement that the Programme Plan was comprehensive and adequately reflected all specifications and planning elements. Another important milestone was reached when SIA/Colt and SWIFT, the two licensed Value-Added Network Service Providers that will connect all potential users to T2S, successfully completed the acceptance procedure.

In March 2013, the Governing Council of the ECB approved the plan for CSDs to migrate to T2S in four waves between June 2015 and February 2017.

On the journey toward post-trade harmonisation in Europe, T2S continued to drive the process, with the Advisory Group (AG) progressing on setting standards and monitoring compliance. A high-level conference on post-trade harmonisation and financial integration in Europe also put additional emphasis on this topic. A very important step in this direction was achieved on 18 December 2013 when a preliminary political agreement was reached on the CSD Regulation in Brussels. The CSD Regulation provides a harmonised legal framework for what T2S makes possible technically and will thus benefit the work on post-trade harmonisation greatly.

In October 2013, the Eurosystem also started its T2S user training programme based on a "train the trainer" approach. The programme will continue throughout 2014.

The T2S project thus moved forward according to plan and we are committed to continuing the strong cooperation in the T2S Community in order to reach our common goal of enhancing European financial integration through a more harmonised and efficient post-trade landscape.

T2S Community

The T2S Community brings together the Eurosystem, the 24 CSDs which have already committed to the project (five of which are from outside the euro area), and Danmarks Nationalbank, which decided to use T2S for securities settlement in Danish kroner as of 2018. Other key members of the T2S Community are the 4CB – the four central banks (i.e. the Deutsche Bundesbank, the Banque de France, the Banco de España and the Banca d’Italia) that are in charge of developing the T2S software. In addition, market participants in the T2S markets, public authorities at both the EU and the national level, regulators and overseers as well as the two Value-Added Network Service Providers that were selected for T2S, i.e. SIA/Colt and SWIFT, are also part of the T2S Community.

CSDs participating in T2S

• Bank of Greece Securities Settlement System – BOGS (Greece)
• Bank of New York Mellon CSD SA/NV (Belgium)
• Centrálny depozitár cenných papierov (Slovakia)
• Clearstream Banking (Germany)
• Depozitarul Central (Romania)
• Eesti Väärtpaberikeskus (Estonia)
• Euroclear Belgium
• Euroclear Finland
• Euroclear France
• Euroclear Nederland (Netherlands)
• Iberclear – BME Group (Spain)
• Interbolsa – Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários (Portugal)
• KDD – Centralna Klirinško Depotna Družba (Slovenia)
• Központi Elszámolóház és Értéktár – KELER (Hungary)
• Latvijas Centrālais depozitārijs (Latvia)
• Lietuvos centrinis vertybinių popierių depozitoriumas (Lithuania)
• LuxCSD (Luxembourg)
• Malta Stock Exchange
• Monte Titoli (Italy)
• National Bank of Belgium Securities Settlement System – NBB-SSS (Belgium)
• Oesterreichische Kontrollbank (Austria)
• SIX SIS (Switzerland)
• VP LUX (Luxembourg)
• VP Securities (Denmark)

T2S is, and will remain, open to new participants. This means that other non-euro area central banks and other CSDs can still join T2S and sign the Currency Participation Agreement or the Framework Agreement in the future, should they wish to.

In 2013, the T2S Community kept growing. First, the recently established Bank of New York Mellon CSD SA/NV signed the T2S Framework Agreement on 17 May 2013. BNY Mellon decided to set up and operate its own CSD in T2S to facilitate its settlement and custody business in Europe. BNY Mellon CSD is recognised under Belgian law and incorporated in Brussels. Second, on 26 September 2013, Latvijas Centrālais depozitārijs, the Latvian CSD belonging to NASDAQ OMX Group, also joined the T2S Community by signing the Framework Agreement, meaning that all three Baltic CSDs are now part of the T2S Community. This increased to 24 the number of CSDs that have committed to T2S.

In the Advisory Group meeting in June 2013, the Client Readiness Monitoring function, a community coordination and assessment tool, was fully implemented and is now part of the regular T2S reporting and steering framework. Using this tool, the participating CSDs and central banks carry out a self-assessment regarding whether their adaptation approach has been implemented and is progressing according to the T2S Programme Plan. The tool also indicates whether all participants of a specific migration wave are aligned in their progress and ready to migrate in due course. These self-assessments form the basis for the progress evaluations which are discussed and published by the T2S Advisory Group.

By 15 October 2013, 31 institutions had expressed their non-binding interest in becoming directly connected parties (DCPs) in T2S. DCPs will interface directly with T2S via one of the two Value-Added Network Service Providers, subject to the authorisation of their respective CSD(s)/national central bank and certification by the Eurosystem. The initial – non-binding – list of banks that intended to become DCPs was provided by the CSDs and published on the T2S website. The institutions were asked to make a binding commitment by 3 March 2014, thus declaring that they would become a DCP as from the first migration wave for their securities and/or cash business in the application-to-application (A2A) mode.

Progress made in 2013

Status of T2S development and testing

In April 2013, the 4CB completed the software development of the T2S core functions, while the development of the non-core functions was finalised in September. However, the development activities continued afterwards for the implementation of change requests, mainly relating to migration as well as to the correction of identified defects.

The 4CB tested the T2S application thoroughly throughout the whole year. In June 2013, tests at module level were completed, thus allowing tests of the functions of T2S in separate and parallel modules. The subsequent end-to-end tests were carried out with the purpose of verifying the smooth functioning of the application in an integrated environment. They will continue in the first quarter of 2014.

By the end of 2013, 80% of the core functions of the T2S software had been tested from an end-to-end perspective. It is expected that the Eurosystem acceptance testing of the T2S platform will begin at the end of March 2014.

User testing and migration issues became one of the main focus points of the CSD Steering Group and the Project Managers Group. The amended migration approach, which increased the number of migration waves from three to four, resulting in a longer overall migration phase, permitted the resolution of all remaining issues (see also T2S migration plan ).

Technical documentation

The scope of T2S remained stable although 39 change requests were approved (see Table 1: Approved change requests (CRs) in 2013).

In 2013 periodical updates of the T2S functional documentation took place. The objective of each update is to incorporate the various change requests that have been approved since the publication of the previous document version. In this context, the T2S Programme Office published updated versions of the following documents:

• the User Requirements Document (URD) v5.03,
• the Business Functionality for the T2S Graphical User Interface (GUI BFD) v1.9 and
• the Business Process Description (BPD) v1.2.

Following an introductory workshop on the User Handbook (UHB) v1.0 the Change Review Group also reviewed the UHB v1.0 from a users’ perspective via written procedure. Market participants gave their comments and feedback was provided by the T2S Programme Office. The next publication of the UHB, foreseen for 2014, will take these comments into account.

In addition to the UHB, the T2S User Detailed Functional Specifications (UDFS) and the T2S General Functional Specifications (GFS) will be updated in 2014. For the convenience of the market participants in the meantime, the 4CB compiled a list of the change requests, detailing their impact on these documents, in two Document Change Notices (one for the UHB, and one for the UDFS and GFS). These two documents were updated in the course of 2013.

The drafting of the Manual of Operational Procedures (MOP) by the Operations Managers Group (OMG) also progressed. Its aim is to achieve one common framework and detailed procedures not only for the daily routine, but also for exceptional operational scenarios. Considerable progress was achieved in view of the start of T2S user testing in 2014, for which the MOP is an essential input. It is planned that the first release of the MOP, which contains the elements required for the start of user testing, will be agreed by the OMG in its meeting in March 2014. The second release of the MOP, containing the full operational procedures, is expected to be finalised in September 2014.

Support of connectivity preparations

The directly connected T2S actors were offered two options for connecting to T2S: (i) a Value-Added Network Service Provider, or (ii) a Dedicated Link. This mechanism would have allowed data exchange between directly connected T2S actors and the T2S platform.

The Eurosystem selected two Value-Added Network Service Providers, SIA/Colt and SWIFT. Following an intensive preparation, implementation and testing phase, these two providers successfully completed the network acceptance test at the end of September 2013.

Since none of the T2S actors chose the Dedicated Link connectivity option by the set deadline of 28 June 2013, it will not be developed. This was reflected in the URD by Change Request T2S-0419-URD (removal of Dedicated Link from the URD and related technical documentation). Directly connected T2S actors (i.e. CSDs, central banks, and those CSD participants and payment banks planning to connect directly to T2S) can refer to the T2S Connectivity Guide v1.0, which was published on 29 November 2013. This document provides information about the connectivity modes and the process of registering for connecting to the different T2S environments as well as for receiving relevant documents.

The 4CB created various T2S non-functional tests with the aim of verifying that T2S meets the agreed requirements in terms of business continuity, performance and technical security. In accordance with the T2S full transparency principle, the details of the non-functional tests ( v1.8 of 11 September 2013, v1.9 of 18 October 2013) as well as the functional tests of the Eurosystem acceptance testing were shared with market participants. Thus, T2S actors have a clear overview of the tests that will be performed, which is of key importance for them to agree to start user testing.

Support of stakeholders’ preparations

The T2S Training Calendar was made available on 2 April 2013. It is based on the Public Training Framework published in June 2012 and the T2S Service Description of October 2009. The T2S Training Calendar sets out the training dates and locations for each of the four (basic, technical, functional, operational) T2S user training modules.

The T2S user training programme is based on the "train the trainer" approach, with course places being allocated to each central bank and CSD participating in T2S. The "train the trainer" programme will train designated trainers, who in turn will teach the T2S end-users during in-house courses at CSDs and central banks. This will ensure that end-users are ready to use T2S. Registration for the training courses, which are delivered in the classroom and as webinars, opened in June 2013. The initial series of the T2S Basic Training module was successfully delivered during October and November. The first advanced technical training courses started in January 2014. Remaining sessions will focus on technical, functional and operational issues.

T2S migration plan

In March 2013, the Governing Council of the ECB approved a new migration plan with four instead of three migration waves. The CSD Steering Group had proposed the updated migration plan in order to ensure a more balanced distribution of CSDs across the migration phase, thus reducing the operational risk associated with this process. In November, the Governing Council approved an update of the plan to include BNY Mellon CSD and the Latvian CSD, which had recently joined. Further details on the dates of the migration waves and the participating CSDs can be found in Table 2: T2S migration waves.

Compliance with the T2S Programme Plan

Throughout the planning of the T2S project, the notion of Synchronisation Points is used. A Synchronisation Point is a point in time at which the T2S Programme is to reach a specific objective. The milestones reached in 2013 ensured that two scheduled Synchronisation Points (SPs) were successfully achieved. SP3 (T2S Programme Plan Comprehensiveness), which represents the achievement of a mutual baseline plan for T2S, was reached at the end of May 2013 after the Feasibility Assessment v2.0 was delivered by the central banks and CSDs. The T2S Community has confirmed its mutual agreement that the T2S Programme Plan is comprehensive and adequately reflects any additional specifications, deliverables and planning elements agreed with CSDs or central banks.

With SIA/Colt and SWIFT passing the network acceptance test in September 2013, SP4 (Network Providers Confirmed) was completed one month ahead of schedule. Following the achievement of SP4, both Value-Added Network Service Providers published user documentation on 29 November 2013.

As mentioned above, the software development was completed in 2013 and the internal acceptance tests conducted by the 4CB progressed, with completion planned for the first quarter of 2014. In addition, the preparation of the Eurosystem acceptance testing was finalised in 2013. The pre-execution phase of this testing then started in January 2014 with the connectivity test. As a result, its execution phase will commence according to SP5 on 31 March 2014.

The preparation of user testing has progressed well and will be completed in September 2014 so that testing can start in October 2014. Preparations for migration have also progressed and will continue throughout 2014.

Harmonisation and contribution to financial integration

In 2013, significant progress was also achieved in the area of post-trade harmonisation, which is a key objective of T2S. Post-trade harmonisation will enable T2S to realise its full potential for benefiting the European market, in terms of efficiency and providing a level playing field. The objectives of T2S harmonisation are:

1. to foster the creation of a single rule book for post-trade processes in the T2S Community,
2. to protect the "lean T2S" concept, i.e. the exclusion of national specificities from the T2S operational blueprint and
3. to contribute to financial integration in Europe.

The 2013 harmonisation work was steered by the AG and supported by the Harmonisation Steering Group (HSG), a group composed of senior-level representatives from the industry and the public sector. In 2011 and 2012 the AG had defined a set of top priorities and functional targets for harmonisation activities and indicated the specific actors responsible for the definition, monitoring and timely implementation of standards in the T2S markets. The objective is for all T2S markets to implement harmonised standards in the high-priority areas before they migrate to T2S. A full list of the activities managed by the AG in 2013 is provided below.

Priority 1 activities

Activities necessary to ensure efficient and safe cross-CSD settlement in T2S; the HSG and the T2S team focus on these activities as first priority for resolution and implementation prior to migration to T2S.

1. T2S ISO 20022 messages
2. T2S mandatory matching fields
3. Interaction with T2S (registration procedures)
4. Interaction with T2S (tax info requirements)
5. Interaction with T2S (CSD ancillary services)
6. T2S schedule for the settlement day and calendar
7. T2S corporate actions standards
8. Settlement Finality I (moment of entry of transfer order into the system)
9. Settlement Finality II (irrevocability of transfer order)
10. Settlement Finality III (irrevocability of securities transfer)
11. IT outsourcing (settlement services)
12. Settlement discipline regime
13. Settlement cycles
14. Availability of omnibus accounts
15. Restrictions on omnibus accounts
16. Cash account numbers
17. Securities accounts numbers

Priority 2 activities

Activities that are not essential to ensuring safe and efficient cross-CSD settlement in T2S, but which are key for enhancing the competitive environment and the efficiency of T2S. These activities could continue to be pursued after the T2S launch.

18. Location of accounts/conflict of law
19. Corporate actions market standards
20. Place of issuance
21. Withholding tax procedures
22. Cross-border shareholder transparency and registration procedures
23. Market access and interoperability
24. Securities amount data

In order to monitor developments, the AG produces a yearly harmonisation progress report providing a detailed analysis of the status of all T2S harmonisation activities. The report also highlights who is responsible for the definition, monitoring and implementation of the related standards either within or outside the T2S Community and sets deadlines for compliance by T2S markets.

Thus, after approval by the AG, the Third T2S Harmonisation Progress Report was published in March 2013. It was presented at a conference on "post-trade harmonisation and financial integration in Europe" organised by the ECB and the European Commission (see the Communication section for more information). The report focused on monitoring the compliance of T2S markets with a first set of ten standards and market practices endorsed by the T2S Community or other relevant EU authorities and forums. It provided a detailed analysis of the status of each harmonisation activity in every single T2S market. The assessment was carried out by the HSG and the AG based on the input and information provided by the National User Groups, CSDs and national central banks. Work started within the HSG and the AG in 2013 on preparing the Fourth T2S Harmonisation Progress Report, which is expected to be published in March 2014.

The monitoring of the status of T2S markets as regards the implementation of five additional harmonisation activities began in April 2013, in particular the activities relating to message interaction with T2S – for registration purposes, for tax information requirements and for CSD ancillary services – and those relating to account numbering systems for both securities and dedicated cash accounts in T2S. In addition, monitoring was extended to the two CSDs that joined the T2S Community in 2013 (BNY Mellon CSD and Latvijas Centrālais depozitārijs).

Moreover, the AG considered the standard definition process complete for one more activity, i.e. that relating to withholding tax relief procedures. This decision followed the publication in May of the European Commission’s report "Workable solutions for efficient and simplified fiscal compliance procedures related to post-trading in Europe"; a monitoring framework for this activity is currently being defined by the Commission. Consequently, standards are now set for 16 of the 24 identified harmonisation activities.

Harmonisation of corporate actions processing is a key component of the harmonisation agenda for T2S markets. T2S corporate actions standards were updated as a result of some revisions in the underlying T2S market standards in May. The Corporate Actions Sub-group (CASG) conducted its yearly gap analysis on T2S markets’ compliance with T2S corporate actions standards. The report on this analysis was issued in November. In order to help the T2S markets to establish a uniform interpretation and implementation of the T2S corporate actions standards, the CASG also published an FAQ on the T2S corporate actions standards on the T2S website. In addition, a paper from the T2S Special Series was dedicated to the topic of corporate actions processing in T2S and published in early January 2014. It highlights the importance of the contribution of all relevant actors to the implementation of the standards in order to achieve safe and efficient transaction management in T2S.

On 7 March 2012, the Commission adopted a proposal for a regulation on improving securities settlement in the European Union and on CSDs (amending Directive 98/26/EC) (the "CSD Regulation"). The regulation aims, among other things, to introduce common rules for CSDs. The proposal is currently at the final stage of the adoption process, pending the final vote of the European Parliament. Throughout 2013, the ECB and the T2S governance bodies continued to support and closely monitor this dossier (for example in the conference on post-trade harmonisation and financial integration in Europe). On 18 December a preliminary political agreement was reached on the CSD Regulation.

In autumn 2013 the HSG also started the preparatory work towards facilitating harmonisation and coordination across T2S markets for some high-priority harmonisation activities that depend on the regulation. For instance, the Task Force on T+2 was created to coordinate the migration of T2S markets to a harmonised settlement cycle of T+2, in line with the expected CSD Regulation. Most T2S markets are contemplating migrating to the new cycle in October 2014.

Regarding governance within the HSG, another new sub-structure was set up: the Cross-Border Market Practices Sub-Group (X-MAP). This group is mandated to analyse known or potential issues with respect to the impact of existing and diverging market practices and rules on cross-border settlement efficiency in T2S and to propose T2S market best practices to the HSG regarding these topics. In 2013 the group focused on the use of T2S matching fields and started the analysis of CSDs’ restriction rules. After collecting a list of CSD restriction rules, the X-MAP analyses the impact of the rules on cross-border settlement in T2S.

Following discussions within the T2S Community, on 10 December 2013 the T2S Board issued the " View of the T2S Board on the T2S harmonisation standards compliance framework" (published on the T2S website). The document stresses the importance of timely compliance by all T2S markets with the harmonisation standards and concludes that any instances of non-compliance should be exceptional and the result of barriers that the various market actors are unable to remove.

The T2S Programme Office also continued to support the secretariat of the European Post Trade Group (EPTG) in pursuing its task to dismantle remaining obstacles to a safe, efficient and competitive European post-trading landscape with targeted cooperation between public authorities and the private sector.

Communication

In March 2013 a joint ECB-Commission conference entitled "Post-trade harmonisation and financial integration in Europe" was held. The theme of the conference was how greater financial integration can strengthen the Single Market and make Europe stronger. A distinguished group of speakers debated current EU initiatives at the legislative, operational and business levels aimed at contributing to strengthening financial integration by harmonising the underlying infrastructure. ECB President Mario Draghi opened the conference. Contributions from other high-level speakers, such as Yves Mersch (member of the ECB’s Executive Board), Emil Paulis (Director Internal Market and Services of the European Commission) and Alberto Giovannini (member of the EPTG), made the conference a success and demonstrated the European public authorities’ commitment to the harmonisation agenda. More than 250 participants from all over Europe joined the conference, which was followed by more than 2,000 interested people via webcasting. Speeches, interviews and videos are available online.

T2S was a key point of interest at the Sibos 2013 convention which took place in Dubai from 16 to 19 September. Many Sibos speakers mentioned the benefits and opportunities of T2S and highlighted how it would trigger substantial change in the post-trade landscape in Europe and facilitate a new gateway to the European market for non-European players. Yves Mersch, member of the ECB’s Executive Board, participated in a keynote interview where he referred to T2S as one of the biggest leaps forward in European integration. He also stressed how T2S will optimise the use of collateral for market participants. The T2S Community session hosted by the Eurosystem was entitled "T2S – gateway to the European financial market". The panel members discussed two topics, "Collateral management in T2S" and "T2S beyond Europe", and provided interesting insights.

A video explaining how T2S will optimise collateral management was also launched during Sibos. The video, named "T2S – a single gateway for your collateral management", was published on the T2S YouTube channel.

Moreover, a T2S tutorial series was launched with an explanatory video on the main characteristics of the auto-collateralisation functionality in T2S. The tutorial also highlighted the benefits of auto-collateralisation for T2S users and complemented a Special Series paper on the same topic which was published in October 2012. The tutorial can be found on the T2S YouTube channel.

Market players were again offered the opportunity to join T2S info sessions held throughout the year in various cities in Europe. Different topics were addressed during three info sessions. The one in Helsinkiwas dedicated to T2S harmonisation activities and the specificities of direct holding markets. The focus of the info session in Ljubljana was directed at euro liquidity management in TARGET2 and T2S. The latest one, in Lisbon, concentrated on the T2S stakeholders, namely what CSDs will offer their clients, as well as the rationale for becoming or not becoming a DCP in T2S. In addition, a dedicated info session was held in Frankfurt on user testing and migration. This was the first in a series of dedicated info sessions on this topic, which aim at assisting stakeholders in their preparations for T2S. Throughout the year, workshops with a focus on auto-collateralisation (e.g. characteristics, configuration, collateralisation procedures, involved accounts, central bank feeds, credit memorandum balance and limits) took place ( Meeting documentation 8 March 2013, Meeting documentation 28 October 2013, Meeting documentation 29 November 2013). In addition, an event for future dedicated cash account (DCA) holders was organised. The aim was to provide information on the euro liquidity management in central bank money within T2S.

A single point of access to all the T2S-related information provided by every CSD was also offered on the T2S webpages. The page lists the CSDs which have signed up for T2S and the links to their respective websites.

Financial matters

T2S operates on a full cost recovery basis. Thus, the T2S financial equilibrium requires that the costs incurred are covered by the revenues generated by T2S. The latter are driven by the volume that will be settled on the single settlement platform as of start of operations.

T2S costs remained stable and only increased to reflect the changes requested and agreed by the T2S Community (see Table 1: Approved change requests (CRs) in 2013 in the section on Technical documentation). In 2013, the Governing Council of the ECB reviewed the T2S financials with the objective of keeping cost increases to an absolute minimum. The evaluation took into account the 2013 decision to implement changes to the T2S User Requirements deemed by the market as indispensable for the smooth functioning of T2S. When reviewing the financial situation of T2S, the Eurosystem estimated that the total investment in T2S until it starts live operations will amount to €399.8 million. By the end of 2013, the Eurosystem had paid €197.7 million of this amount to the entities conducting the work in the development phase, i.e. the 4CB and the ECB (the payment to the ECB for costs incurred in 2013 is not included and will be made in early 2014). It was estimated that operating and maintaining T2S would cost €64.6 million per annum. In addition, €69.9 million capital costs for the financing of T2S were computed, as well as €45.0 million of reserve funds which could be used for unforeseeable T2S costs incurred during operations.

Figures might not add up because of rounding.

The total of T2S fees depends on three parameters:

1. the volume of securities settlement transactions that will be settled in T2S as of the start of its operations,
2. the length of the cost recovery period and
3. the T2S fees that will be charged according to the fee structure announced in 2011.

In 2013, the Eurosystem continued its regular settlement volume analysis, in order to allow for realistic T2S volume projections and thus also projections of future T2S revenue streams. The settlement volume analysis is conducted on the basis of the information provided by European CSDs in line with what has been agreed in the Framework Agreement. The volumes reported by CSDs are projected forward until the end of the cost recovery period using the growth rates anticipated by the T2S Advisory Group in 2010.

According to the latest data reported by CSDs to the Eurosystem, the traffic among the CSDs that have signed the T2S Framework Agreement grew by 6.3% in 2013 compared with 2012. This growth is higher than the expected 4.7% for 2013 and contributes to slightly reducing the gap vis-à-vis the initial volume projections from -21.3% in 2012 to -20.1% in 2013.

The pricing policy stipulated in the Framework Agreement foresees the possibility of modifying the T2S prices under two conditions, namely (i) if the volume deriving from the contribution of non-euro currencies is less than 20% of the euro settlement volume, and (ii) if market volumes are more than 10% below the projections. In March 2012, the T2S Programme Board clarified the T2S pricing policy, emphasising that it did not intend to propose any revision of the benchmark price of 15 euro cent per delivery-versus-payment (DvP) settlement instruction until at the earliest one year after the last migration wave (i.e. not before 2018), in order to have a stable volume basis in T2S for assessing the two above-mentioned conditions of the T2S pricing policy. In 2013 the T2S team continued to monitor the market trends, and the position of the T2S Board did not change. Meanwhile, in the course of the year, the T2S Board started investigations into attracting additional sources of revenue to T2S, e.g. reinvigorating the dialogue with the investment fund industry and exploring further the markets inside and outside Europe.

T2S general objectives and targets

To reduce risk in the post-trade environment in Europe

• by delivering real-time gross settlement exclusively in central bank money, ensuring the safest possible settlement of securities in Europe and significantly reducing the risks still affecting cross-border settlement today.
• by employing the so-called "integrated model", in which securities and cash accounts are held on a single platform, overcoming the delays in processing transactions and the risks of error which still exist in securities settlement systems based on the "interfaced model".
• by incorporating several features that aim to help banks optimise their liquidity and collateral management, the importance of which has never been as pronounced as it is today. T2S endeavours to give banks the possibility to have a single (and thus reduced) buffer based on their total European business by abolishing the need for market participants to hold multiple buffers of collateral and liquidity when settling in several European markets. Furthermore, the highly efficient auto-collateralisation mechanisms T2S plans to extend to all T2S markets should significantly reduce the need for pre-funding of cash accounts during both daytime and, in particular, night-time settlement.
• by promoting greater diversification and sharing of risk, which will help make the whole system more stable. Through dramatically increasing the ease of cross-border transactions, T2S allows investors to hold a more geographically diversified portfolio of securities. T2S should provide investors with the possibility of higher risk-adjusted returns, and benefit issuers through a more diversified and stable investor base as well as a lower cost of capital. In general, T2S will help to increase financial stability in Europe, dampening the impact of asymmetric shocks by spreading economic gains and losses more widely.

To streamline the settlement process in Europe

• by providing a single pan-European platform for securities settlement, following a "lean" T2S concept. Combining this with the drive for deeper harmonisation of financial markets, T2S seeks to enable banks to streamline and potentially consolidate their back offices, facilitating considerable cost savings. T2S aims to be a major step forward towards a fully straight-through processing world.
• by making cross-border settlement as efficient as domestic settlement, while avoiding the cementation of national specificities into the system’s operational blueprint. T2S will force harmonisation in many crucial areas, such as the adoption of a common interface and common message formats, a common set of rules for intraday settlement finality and a harmonised daily timetable and calendar. Through this process, T2S aims to help remove Giovannini barriers 1, 2, 3, 4, 5 and 7.

To enhance freedom of choice in the securities settlement industry in Europe

• by increasing transparency, openness and competition between CSDs, penetrating the largely monopolistic national environment that they currently operate in. With 40 CSDs active in Europe today, the range of different national regulations and market practices have created a very opaque settlement industry that investors are not able to navigate without difficulty. Although the publication of settlement tariffs was made compulsory in the European Code of Conduct for CSDs, T2S endeavours to increase comparability with a fully transparent and uniform price list.
• by separating the "infrastructure" from the "service", giving customers in T2S more freedom of choice as regards where they want to trade and settle. Following the delivery of the system, CSDs will need to compete to be their customers’ preferred gateway to T2S, and in doing so must become open about what they are able to offer. T2S aims to ensure that customers will no longer be prevented from crossing national borders owing to technical and market practice restrictions, progressively transforming the securities settlement landscape in Europe.

To reduce the cost of settling securities transactions in Europe

• by reducing the current cross-border settlement fees thanks to the economies of scale deriving from the concentration of settlement on a single platform. Cross-border settlement across European countries today is up to ten times more expensive than domestic settlement owing to the fragmentation of the process over several platforms and the need for the contribution of a long chain of intermediaries.
• by assisting CSDs in their adaptation plans, in order to help them to also reduce domestic settlement fees.
• by dramatically changing the competitive environment for European CSDs in combination with CSD legislation, and in doing so providing a higher degree of freedom for all participants. T2S aims to ensure that CSDs respond to this changing settlement landscape with a business model set to lead to cheaper securities settlement, whether through efficient reshaping, specialisation, consolidation or simply strategic pricing.
• by expanding the system beyond the euro area. Through encouraging non-euro area CSDs and central banks to join the T2S Community, T2S plans to deliver a further reduction of prices in the future, exploiting fully the huge economies of scale present in such a system.

* The Giovannini barriers are a set of 15 specific barriers that prevent efficient EU cross-border clearing and settlement, identified by the Giovannini Group in a report in 2001. The barriers referred to that T2S seeks to help remove are the following:

1. National differences in information technology and interfaces.
2. National clearing and settlement restrictions that require the use of multiple systems.
3. Differences in national rules relating to corporate actions, beneficial ownership and custody.
4. Absence of intraday settlement finality.
5. Practical impediments to remote access to national clearing and settlement systems.
6. National differences in operating hours/settlement deadlines.