T2S (TARGET2-Securities) is a European

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

settlement Settlement may refer to: *Human settlement, a community where people live *Settlement (structural), the distortion or disruption of parts of a building * Closing (real estate), the final step in executing a real estate transaction *Settlement (fin ...

engine which aims to offer centralised delivery-versus-payment (DvP) settlement in central bank funds across all European securities markets. It is important to take note of the fact that T2S is not a

central securities depository A central securities depository (CSD) is a specialized financial organization holding securities like shares, either in certificated or uncertificated ( dematerialized) form, allowing ownership to be easily transferred through a book entry rather t ...

(CSD), but a platform intended to enable CSDs to increase their

competitiveness In economics, competition is a scenario where different economic firmsThis article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the same (legal) firm ...

. After market consultations and a decision by the Governing Council of the

European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centr ...

(ECB), the project was launched in 2008 and the platform started operations in 2015. The T2S Framework Agreement, negotiated between CSDs and the

Eurosystem The Eurosystem is the monetary authority of the eurozone, the collective of European Union member states that have adopted the euro as their sole official currency. The European Central Bank (ECB) has, under Article 16 of its Statute,

, has been signed by 24 CSDs,"Central securities depositories (CSDs)"
European Central Bank. Retrieved 2 June 2014. which migrated to the T2S platform in four waves between June 2015 and February 2017.
European Central Bank. Retrieved 2 June 2014. The fundamental objective of the T2S project is to integrate and harmonise the highly fragmented securities

infrastructure in Europe. It aims to reduce the costs of cross-border securities settlement and to increase competition and choice amongst providers of post-trading services in Europe. Therefore it is a critical step forward in the creation of the single market for financial services in the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...

. The development and operation of T2S was assigned to four

central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central b ...

s of the

—those of

France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of overseas regions and territories in the Americas and the Atlantic, Pacific and Indian Oceans. Its metropolitan area ...

Germany Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...

Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...

, and

Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , i ...

. The project is being coordinated by the ECB. The IT platform will be owned and operated by the Eurosystem. Technical details of the project are available at the ECB T2S project website.

Objective and benefits

One of the objectives of T2S is to reduce the cost of securities settlement in Europe, in particular for transactions across EU countries, which can be ten times more expensive than domestic transactions. In addition, banks are able to optimise their collateral (finance) and liquidity management."Survey on the Benefits of TARGET2-Securities
, ''Clearstream''. The T2S settlement platform is also a step towards a single market for financial services. The T2S project was intended as a catalyst for further harmonisation of post-trade practices and regulations across Europe. Significant progress has already been made by the T2S governance bodies, composed of industry experts, on harmonisation of instructions management and settlement processes, as well as on the processing of corporate actions on unsettled transactions."Fourth T2S Harmonisation Progress Report"
European Central Bank, 19 March 2014. As a result of reduced settlement costs, increased

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indiv ...

, and greater harmonisation, T2S is expected to have a positive impact on European economic growth. The lower costs of settlement, and potentially the costs for other post-trade services, are expected to be passed on to investors. Furthermore, by making it easier and less costly to access securities in other EU countries, investors could benefit from more diversified

bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemica ...

and equity portfolios. In addition, issuers will gain access to a more diversified investor base. The T2S platform is supposed to also have a positive impact on financial stability. In particular, it helps to reduce the risks that still affect the settlement of cross-border transactions. With its robust business continuity solution, it also decreases counterparty and settlement agent risk. Additionally, by fostering greater efficiency and integration of European financial markets, T2S may lead to greater diversification and sharing of risks, adding to the stability of the whole system."Financial Integration in Europe"
European Central Bank, April 2014. Due to the lean T2S concept and the resulting facilitation of post-trade activities, banks are able to streamline their back offices and thus produce cost savings. As T2S separates the settlement infrastructure from the services offered by CSDs, competition in the provision of these services may increase and benefit the customers Europe-wide."T2S Benefits: Much More Than Fee Reductions"
European Central Bank, T2S Special Series, June 2012.

Origin

Historically, financial market infrastructures in Europe were created to meet the requirements of national financial markets. In most cases, there were one or two dominant players at each stage of the value chain: typically one stock exchange for trading, one

central counterparty A central clearing counterparty (CCP), also referred to as a central counterparty, is a financial institution that takes on counterparty credit risk between parties to a transaction and provides clearing and settlement services for trades in fore ...

(CCP) for clearing and at least one CSD for settlement. Furthermore, these national infrastructures were primarily designed to manage securities denominated in the national currency. Securities settlement across Europe thus remained costly and cumbersome. Despite the introduction of the euro more than ten years ago, the provision of post-trading services (i.e., clearing and

) remained heavily fragmented along national lines. For example, there were still 19 CSDs operating in the euro area in 2009 and almost 40 in the 27 countries of the EU. This situation is clearly not optimal for a single currency area or for the EU, as it encourages each country's financial market to remain domestically oriented. Investors continue to invest mostly in domestic securities, and as a result, the euro-area financial market cannot fully benefit from the risk

diversification Diversification may refer to: Biology and agriculture * Genetic divergence, emergence of subpopulations that have accumulated independent genetic changes * Agricultural diversification involves the re-allocation of some of a farm's resources to ...

and

benefits that arise from having a single currency. These barriers which provoke a considerable competitive disadvantage for European capital markets were identified in a report by the Giovannini Group."Second Report on EU Clearing and Settlement Arrangements"
The Giovannini Group, June 2003."Payments, Securities and Derivatives, and the Role of the Eurosystem"
European Central Bank, 2010. EU authorities have taken up initiatives to remove impediments to competition between national markets. The most important initiatives from the

European Commission The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body ...

are the

Markets in Financial Instruments Directive Markets in Financial Instruments Directive 20142014/65/EU commonly known as MiFID 2 (Markets in financial instruments directive 2), is a legal act of the European Union. Together with Regulation (EU) No 600/2014 it provides a legal framework fo ...

(MiFID), the

European Market Infrastructure Regulation The European Market Infrastructure Regulation (EMIR) is an EU regulation aimed at reducing systemic counterparty and operational risk and thereby prevent future financial system collapses. Its focus is regulation of over-the-counter (OTC) deriv ...

(EMIR) and the Central Securities Depositories Regulation (CSDR). T2S as a pan-European platform is intended to complement these existing initiatives by boosting competition, increasing price transparency, and harmonising practices across Europe.

Operations

Outage

In October, 2020, T2S and the associated ECB payments system

TARGET2 TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the real-time gross settlement (RTGS) system for the Eurozone, and is available to non-Eurozone countries. It was developed by and is owned by the Eurosystem ...

experienced an almost-11-hour outage. Not long before

Euronext Euronext N.V. (short for European New Exchange Technology) is a pan-European bourse that offers various trading and post-trade services. Traded assets include regulated equities, exchange-traded funds (ETF), warrants and certificates, bonds, ...

NV, a stock market on the continent, also experienced some outages.Fairless, Tom
"Europe’s Core Payments Network Disrupted by Technical Malfunction"
, ''Wall Street Journal'', October 28, 2020
re: Euronext's Oct. 2020 outages in WSJ
Retrieved 2020-10-28.

References

External links

T2S page on the ECB website

"T2S Framework Agreement
European Central Bank. 2011. Retrieved 24 June 2014.

Sources

* ttp://www.ecb.europa.eu/paym/t2s/progplan/history/html/index.en.html History of the T2S Projectbr>Fourth T2S Harmonisation Progress Report
European Central Bank. 19 March 2014. Retrieved 2 June 2014.
Financial Integration in Europe
European Central Bank. April 2014. Retrieved 2 June 2014.
T2S Benefits: Much More Than Fee Reductions
Ben Weller, European Central Bank. June 2012. Retrieved 17 June 2014.
Second Report on EU Clearing and Settlement Arrangements
The Giovannini Group. Brussels, April 2003. Retrieved 3 June 2014.
Payments, Securities and Derivatives, and the Role of the Eurosystem
European Central Bank. 2010. Retrieved 3 June 2014. {{DEFAULTSORT:T2s Banking European Union financial market policy Securities (finance) Stock market