TARGET2-Securities: settlement of securities transactions

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Together with gross settlement systems, securities settlement systems are the foundations supporting the financial structures of modern economies. These systems enable the exchange of financial instruments and of their countervalue between market players.

Safe and efficient settlement systems are a precondition for the smooth functioning of markets: specifically, in order to guarantee the possibility of investing in all markets under the same conditions in a single currency area, the cross-border settlement of financial instruments must take place under conditions equivalent to domestic settlement systems. In line with this objective, the Eurosystem created TARGET2-Securities (T2S), the multi-currency, pan-European platform for settling securities transactions in central bank money. Nowadays, thanks to T2S, securities transactions are settled at the same cost and in the same way in all European Union (EU) national markets, regardless of the investor’s country of origin.

T2S is contributing to the establishment of the Capital Markets Union (CMU) promoted by the European Commission; the creation of a single harmonized platform has made it possible to remove six technical barriers of the 15 identified by the Giovannini Group, which were hampering the complete integration of securities settlement services in Europe. Removing the barriers to the free flow of capital extends the diversification and expansion of investment sources, helps to simplify access to credit for firms and makes the financial system more stable and resilient to future banking crises, to the benefit of credit institutions, investors and EU citizens.

T2S has three main objectives:

  • to enable the efficient settlement of cross-border securities transactions and to make this identical to domestic settlement throughout Europe;
  • to help with integrating post-trading activities by harmonizing technical and operational practices, in line with the prospect of increasingly competitive and efficient markets;
  • to allow banks to settle all securities transactions made on European markets by using a single settlement account and exploiting optimization and auto-collateralization mechanisms, with net benefits in terms of cost-saving and liquidity management.

The development and operation of T2S was assigned to the central banks of France, Germany, Italy and Spain (4CBs) and coordinated by the European Central Bank. The expected service levels and the legal relations between the Eurosystem and the 4CBs, given their role as platform service providers, are regulated by contract.

Banca d’Italia handles both the operational management of the platform and the provision of support and assistance to the national financial community, just as it does for TARGET2.

In its role as platform operator, Banca d’Italia is - together with the Deutsche Bundesbank - the first point of contact for all participating national central banks (NCBs) and central securities depositories (CSDs); it intervenes in the event of a malfunction, monitors compliance with the expected service levels and helps to maintain and develop the system as well as to manage the administrative, legal and security aspects. It also runs both the IT infrastructures that make the system function and those necessary to upgrade it.

In its role as support and assistance provider for the national financial community, it is the only point of contact at technical and administrative level for Italian financial intermediaries, it monitors the transactions carried out, and intervenes in the event of malfunctions affecting the system or individual participants.

Under T2S, CSDs have entrusted the Eurosystem with the technical management of the functions relating to securities settlement, but they continue to provide value-added services such as custody services, securities lending, corporate event management, triparty collateral management and business relationships with customers, for whom they remain legally responsible. Participation in T2S by depositories is voluntary and governed by the Framework Agreement, the contract setting out the mutual rights and obligations of the Eurosystem and of participating CSDs.

T2S was designed to operate as a multi-currency platform: the platform can be accessed by central banks outside the euro area in order to settle securities transactions denominated in their respective national currencies if they sign the Currency Participation Agreement (CPA). The central bank of Denmark was the first to sign up to the CPA and it has made settlement in Danish kroner available on T2S in November 2018.

In order to allow depositories and large custodian banks to connect and communicate with T2S, the technical solution agreed with users connects them to the platform by means of value-added services that are the same for all intermediaries. These services are provided within a competitive system by two connectivity service operators, SWIFT and SIA-COLT, which were selected following a tender procedure carried out by Banca d’Italia on behalf of the Eurosystem.

The process of migrating to T2S of individual national systems took about two years and was managed in five ‘waves’, starting from 22 June 2015.

A fundamental step in the creation of T2S was connecting the CSDs to the platform (migration) after dismantling individual national settlement systems. This was a complex process on a technical and regulatory level which took two years and ended in 2017. All of the 21 CSDs operating in 20 European financial marketplaces have now completed the migration.

The migration process was conducted in an orderly manner, which was especially important since it took place in live financial markets.

Monte Titoli was one of the first CSDs to migrate to T2S, as early as August 2015. In 2015 Banca d’Italia carefully assessed the readiness of the depository and of Italy’s financial market, and coordinated the preparation for an orderly migration. Other depositories moved to T2S at various times between September 2016 and September 2017.

Number of operations settled in T2S

Numbers for TARGET2-Securities (December 2017)(1)

  • As of December 2017, the platform had settled more than 570,000 securities transactions per day on average, for a value of around €900 billion.
  • Some 52 per cent of transactions were settled overnight, while the remainder were settled in real time during the day.
  • Settlement Efficiency, namely the ratio between end-of-day settled and unsettled transactions, was over 97 per cent in terms of both volume and value.

(1)Source, ECB:


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