The new European securities settlement service, TARGET2-Securities (T2S) was launched on schedule on 22 June 2015. In setting up T2S, the Eurosystem is offering users a shared platform for settling securities, wherever they may be in Europe. T2S will not only make it easier and cheaper to settle cross-border securities transactions, thus eliminating fragmentation in the European securities settlement market; the service also has substantial potential to optimise the business of liquidity management.

Only last weekend, the central securities depositories (CSDs) of Malta, Greece, Romania and Switzerland successfully mounted the T2S platform in the first of several waves of migration. Italy will follow suit on 31 August 2015. Europe's remaining CSDs will migrate in three subsequent waves, with completion due in February 2017. The German market has a fair amount of time left to make preparations as Germany's CSD, Clearstream Banking AG (a subsidiary of Deutsche Börse AG), is not scheduled to migrate to T2S until September 2016. Once that occurs, the vision of a centralised pan-European platform for settling securities using central bank money will have started to take concrete form after about seven years of preparation.

As Jochen Metzger, Head of the Bundesbank's Payments and Settlement Systems Department and member of the T2S Board put it, "Working hand in hand with the ECB, the three partner central banks, national CSDs and the banking community, we take pride in having punctually launched T2S, which is by far the largest infrastructural project ever undertaken by the Eurosystem." The ECB's Governing Council first gave its official blessing to T2S on 17 July 2008, since which time the Deutsche Bundesbank, together with Banque de France, Banca d’Italia and Banco de España, (henceforth referred to as the "4CB") has been developing and jointly operating the system with its three partner central banks.

Cheaper and safer to use

But T2S is much more than a means of settling securities with greater efficiency. Most importantly, it offers financial market participants the opportunity to enhance their liquidity and securities management. Not least through the possibility of bundling securities portfolios and recourse to cash-pooling, banks can make considerable savings with respect to central bank liquidity and collateral. These effects are reinforced by intelligent optimisation algorithms used in the T2S settlement process, effects arising from a settlement system spanning all participating markets and the array of self-collateralisation options on offer.

Having set the T2S ball rolling, the Bundesbank has additionally established the first T2S cash accounts for customers maintaining a business relationship with one or more of the CSDs included in the first migration wave. When the Italian market migrates at the end of August, any institutions already holding a T2S cash account with the Bundesbank will also be offered the chance to use intra-day credit under its self-collateralisation facility. Under the terms of use, the Bundesbank will grant these institutions intra-day credit on the basis of securities rendered, with the effect that – except for a haircut – the individual securities transaction pays for itself.

German banks need to get ready

Looking ahead to the launch of T2S in Germany, Executive Board member, Carl-Ludwig Thiele, recently commented that: "Where no action has already been taken, German banks need to vigorously apply their energies to preparing for T2S by September 2016. Not just in terms of acquiring the suitable technical equipment but also in order to gain maximum benefit from the chances on offer." He added that this was the only way they would survive in future amid fierce European competition.