T2 and the settlement of gross payments

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What is T2?

The adoption of the euro and the associated handling of the single monetary policy by the Eurosystem meant that a settlement system for payments in euros was required, to facilitate the efficient circulation of liquidity within the euro area. Thus, the TARGET system (Trans-European Automated Real-Time Gross Settlement Express Transfer system) was created in 1999 by linking the existing national gross settlement systems to an Interlinking network. The network operated on the principle of 'minimal harmonization' (relative to operating hours, the granting of intraday liquidity and the fee schedules for cross-border payments).

The need to ensure the complete harmonization of services and their costs, together with the need for greater flexibility to cope with the expansion of the European Union, led to the development of a single system, TARGET2, based on a Single Shared Platform (SSP). This system was launched in November 2007 and, as groups of countries transitioned from the original system to the new one in scheduled migration 'windows', fully replaced the former TARGET system by May 2008. With the technical and functional consolidation project of TARGET2 and T2S, completed in March 2023, TARGET2 evolved into the T2 system, which integrates the functionalities of a Real-Time Gross Settlement (RTGS) system with those of a Central Liquidity Management (CLM) system. T2 lays the groundwork for the proper functioning of the single currency and is one of the pillars of the euro area's financial integration process.

T2 Objectives

T2 was created by the Eurosystem to settle, on a gross basis[1] and in central bank money, monetary policy operations, interbank payments, operations on behalf of customers and ancillary system transactions (consumer payment systems, securities settlement systems, central counterparties and money markets). T2 was developed by Banca d'Italia, Banco de España, Banque de France and Deutsche Bundesbank (known as the '4CBs') as part of the T2-T2S Consolidation project.

Payments are settled in T2 through the participants' accounts held with their central banks, making it possible for payments to flow safely and efficiently across the entire euro area, thereby contributing to the stability of the euro. 

Specifically, T2:

  • enables the implementation of the Eurosystem's monetary policy and the operation of the euro money market;
  • improves the robustness of the financial system as a whole, helping to mitigate systemic risk, thanks to the speed and certainty of settlement of large-value payments;
  • ensures the efficient processing of cross-border payments in euros.

How does T2 work?

Payment orders are submitted to the platform for processing and are settled in real time, guaranteeing immediate finality of the transaction[2] with no limit on the transferable amount.

In order to settle payments smoothly in T2, system participants have access to 'unlimited intraday credit' - i.e. liquidity provided by their own central bank in exchange for the pledge of collateral into the pool account. This credit must be repaid by the end of the business day.

T2 enables efficient liquidity management by providing participants with functions such as: payment priorities, timed transactions, liquidity reservation facilities, bilateral and multilateral exposure limits (with respect to the single participant or to all participants), and optimization procedures, which make it possible to reduce liquidity needs when settling payments. Compared with TARGET2, T2 offers new services and functionalities, such as the adoption of theISO 20022 messaging standard, just like for T2S and TIPS, and the possibility in the future to settle payments in currencies other than the euro. In addition, T2 integrates a new Central Liquidity Management (CLM) service that allows participants to manage and monitor liquidity for all TARGET Services (T2, T2S and TIPS) in a centralized manner via a single main account linked to accounts dedicated to the different services. Moreover, the liquidity held on such dedicated accounts is treated, for the purposes of reserve requirements, without the need to transfer balances to the main account.

Participants interact with T2 to send payment messages, system queries, and receipt of notifications and reports through the ESMIG (Eurosystem single market infrastructure gateway), the single entry point for all TARGET Services. Participants can choose among various connectivity options and between two different Network Service Providers, NEXI-Colt and SWIFT, selected through a European tender in which Banca d'Italia acted as agent on behalf of the Eurosystem. T2 is operational from Monday to Friday. It is closed on the following days:

  • 1 January
  • Good Friday
  • Easter Monday
  • 1 May
  • 25 December
  • 26 December

From a legal point of view, the T2 system is divided into distinct national components; each national central bank operates according to the principle of 'decentralization' and has administrative and working relationships with participants operating in the country.

In its role as service provider, Banca d'Italia is, together with the Bundesbank, the first point of contact for all T2-participating national central banks (NCBs). It intervenes in the event of a malfunction, monitors compliance with the expected service levels and helps to maintain and develop the platform 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 National Service Desk (NSD), on the other hand, Banca d'Italia provides support and assistance to the national financial community from both a technical and an administrative point of view. It monitors the settlement of payments and intervenes in the event of malfunctions affecting the system or individual participants.

The platform is periodically upgraded with new releases, designed to update the services provided and to introduce new technical and business functions.

To ensure business continuity in the event of both local and regional disasters, the consolidated T2 and T2S infrastructure is distributed across four operating sites in two separate regions.

The expected service levels and the legal relationships between the Eurosystem and the 4CBs, given their role as platform service providers, are regulated by contract: 95 per cent of transactions must be processed in under two minutes.


[1] 'Gross settlement' in central bank money refers to the settlement of each transaction one by one, without netting, in the accounts held by institutions with their respective central banks.

[2] Under the Settlement Finality Directive (SFD 98/26/EC), the settlement of a monetary or financial transaction in a designated system is deemed to be final and irrevocable even when the participant has become insolvent and insolvency proceedings have been opened against it.

Contacts

Markets and Payment Systems Directorate General
Payment Systems Directorate
Wholesale Payment Systems Division
Via Pastrengo, 14 - 00185 Rome

Tel: +39 06 4792 5700
e-mail: target.services@bancaditalia.it

Markets and Payment Systems Directorate General
Payment Systems Directorate
Eurosystem Market Infrastructures Division
Largo Guido Carli, 1 - 00044 Frascati

Tel: +39 06 4792 6000
e-mail: SSP-SERVICEDESK-IT@bancaditalia.it

TARGET Services Registration Forms

Contingency modules

Forms to be sent to Banca d'Italia to request contingency operations.

Operational Documentation