The official site of Italy's central bank

TARGET2 securities

In July 2008, after a market consultation and an in-depth analysis of the technical, operational, legal and economic feasibility aspects, the Governing Council of the European Central Bank has launched the TARGET2-Securities (T2S) project (1). T2S is a technical platform that will be offered to central securities depositories (CSDs) for the settlement in central bank money of securities transactions, both domestic and cross-border. The development and future management of the platform has been entrusted to the central banks of France, Germany, Italy and Spain (4CB).

Why T2S? There are three main purposes for the implementation of T2S, scheduled to be launched in June 2015: (i) to enable all intermediaries to settle all securities transactions carried out on European markets using a single settlement account, with clear benefits in terms of liquidity management; (ii) to significantly reduce the cost of cross-border transactions - currently much higher than the post-trading costs on other markets, in particular the US market - while levelling it with the cost of domestic transactions; (iii) to harmonise operational practices and settlement procedures, thereby enhancing competition among CSDs - and between the latter and global custodian banks - in the offer of value-added services.

CSDs will outsource all activities related to securities settlement - currently carried out in-house - to the Eurosystem, whereas they will continue to offer value-added services and keep customer relationships (CSDs will still be the only contractual counterparts of users). Participation in T2S is not mandatory.

In July 2009 the Eurosystem signed a Memorandum of Understanding with most CSDs of the EU. The MoU officially opened a long-lasting negotiation between the two parties; the process was brought to closure on 8 May 2012 with the signature of the Framework Agreement, i.e., the contract that regulates rights and obligations of both CSD and the Eurosystem. During the signing ceremony, that took place in Frankfurt and was attended by the ECB President, nine CSDs, including three of the four main European CSDs (Monte Titoli, Cleasrstream Frankfurt and Iberclear), signed the contract with the Eurosystem. The Governor of Banca d'Italia, acting on behalf of the Eurosystem, countersigned the contract with Monte Titoli (2). Almost all the remaining CSDs of the euro area have signed the FA at the end of June 2012 and will benefit as well from the financial incentives offered by the Eurosystem to early signatories.

Signing the FA, CSDs commit to pay to the Eurosystem the fees for the services offered by T2S. The FA safeguards the principle of full cost recovery allowing the Eurosystem to adjust the fees accordingly, should some conditions related to the volume of settlement transactions occur.

In February 2012 the Governing Council of the ECB endorsed the Currency Participation Agreement (CPA) and subsequently submitted it for signature to the interested non-euro area central banks that will make their currency available for settlement in T2S. The central banks of Great Britain, Switzerland, Sweden, Norway and Iceland declared that they are not yet ready to sign the CPA, whereas the central bank of Denmark has signed at the end of June although they will make the Danish Kroner available for settlement in T2S only as of 2018. The Danish CSD, instead, has signed the FA on 8 May for the settlement in T2S of their euro-denominated securities transactions.

At its meeting of 15 May 2012 the ECOFIN Council welcomed the progress on T2S and reiterated its support for the project as an important contributor for the establishment of the Single Market for securities services.

As to the technical connection of CSDs and global custodian banks to T2S, two solutions have been identified and agreed with the users: (i) through connectivity services offered by two value-added Network (VAN) Service Providers, selected through a public procedure run by Banca d'Italia on behalf of the Eurosystem; (ii) though a direct connection to the platform by way of a "dedicated link". In July 2011 the selection procedure for the two VAN Service Providers was launched, with the publication of the tender documentation on the Banca d'Italia's website (3), and ended in September 2011. In December the two licences were awarded to the selected network providers, SWIFT and the consortium SIA/COLT, that have then signed the agreement for the provision of the connectivity services with Banca d'Italia acting on behalf of the Eurosystem.

In order to implement the second connectivity solution, namely the "dedicated link", the Eurosystem has decided to use CoreNet, the Eurosystem's existing communication network, providing the necessary adaptation to T2S. Corenet will represent an alternative to the VAN solution for connecting to the platform, thus ensuring a more varied choice to users depending on their specific needs. In March 2012 a 'call for interest' was published on the Official Journal of the European Community to identify potential providers for this service. The ECB will then launch a tender based on the applications received.

With regard to the technical/functional aspects of the project, an important milestone was achieved at the end of October 2011, when the ECB published the final version (1.2) of the User Detailed Functional Specifications (UDFS), the document that illustrates in detail the functional features of T2S and gives a thorough description of the set of messages processed in T2S required by participants to adapt their internal procedures to the platform. The new version (1.2.1) of the UDFS is scheduled to be published in September 2012.

For further information on the development of the project and to view all technical documentation, please visit the ECB's website at the link indicated below (4).