What is Target 2 Securities?
Target 2 Securities, or T2S as it is often referred to, is a European Central Bank (ECB) project aiming to centralise the Settlement operation in the post trade value chain for nearly all securities on a single pan-European platform. T2S is scheduled to go live in 2013 and will dramatically reduce Settlement costs.
This single platform is to be operated by the European Central Bank, which invites Central Security Depositaries (CSD) in Europe to outsource their Settlement operations to the ECB. Reduced to its simplest form, T2S could be described as large-scale IT outsourcing. Thus, the main objective of T2S is to reduce the cost of cross-border Settlement in Europe. Discussions on improving Clearing and Settlement operations in Europe having been going on for quite some time, dating back at least to 1996, the year which saw the creation of the Giovannini Group. The latter published two reports identifying barriers and containing various recommendations to make cross-border operations smoother and more cost-efficient. While some of these barriers were of a public nature, such as legal constraints in different member states, others were directly addressed at the private sector and included issues such as the alignment of opening hours and the standardisation of message formats. To an extent, Target 2 Securities can be seen as a reaction to the Giovannini reports, since the platform will harmonise certain practices and remove some of the barriers, both private and public, identified in the reports.
The ABBL and T2S
The ABBL, via its Securities Committee, has been following the T2S initiative from the beginning. As the first Investment fund centre in Europe, Luxembourg has developed important administration and back-office infrastructures, as well as significant specialisation in the handling of securities both at the level of fund distribution and that of funds' securities portfolios. Because of this and because it already has a high-level of expertise in cross-border services, particularly due to its custodian banks for funds from all over the world, the Luxembourg financial centre is ideally placed to welcome the centralisation of custody services that the introduction of T2S will most likely bring about. The ABBL is currently working together with all stakeholders, both public and private, in order to prepare the Luxembourg financial centre for T2S.
The post trade value chain
The post trade value chain consists of three main elements
1. Clearing
After orders have been bought and sold, clearing is the step where transactions are processed in preparation for the transfer of ownership of the product and the fulfilment of obligations.
2. Settlement
Settlement takes place when, once obligations are settled, the ownership of the product and cost is transferred. It involves matching buy and sell instructions and the renewal of the product’s ownership, as well as transferring related cash.
3. Custody
In order to not have to hold physical products at the premises of beneficiaries, the financial industry relies on a localisation of financial products at central custodians, generally known as Central Security Depositories (CSD). CSDs are most often national, but there are also a number of International Central Security Depositories. This activity is also performed by banks for different financial products, but the objectives remain the same: hold securities (electronic or paper) in the bank facility instead of at home. Just as for CSDs, there are two types of custodian banks: the local and the global custodian.
Key technical features of T2S
- It will settle all securities that enter into its scope on a single platform
- It will be an intermediary between Central Security Depositories (CSD)
- It will offer technical access to non-CSDs for direct settlement
- It will offer night and day time settlement
- It will allow the settlement of corporate actions proceeds
- It will provide Delivery versus Payment in real time
- It will be risk free because of the use of Central Bank money
- It will offer matching of instructions
Articles
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19/05/2010
Luxembourg’s Central Bank, the Banque centrale du Luxembourg and Clearstream, the Luxembourg based ICSD today launched LuxCSD, a new central securities depository service for 
Luxembourg and beyond. LuxCSD will allow for settlement of securities transactions in central bank money reducing risk for financial market participants. -
18/05/2010
The report indicates that, by 31 December 2009, a total of 800 direct participants had opened an account in the TARGET2 system. These direct participants had registered 3,687 indirect participants from countries in the European Economic Area, as well as 9,988 correspondents worldwide. When all branches of these direct and indirect participants are included in the figures, more than 50,000 credit institutions across the world can be addressed via TARGET2. -
11/09/2009
In 2008, the total number of non-cash payments, using all types of instruments, increased by 5% to 78 billion in the EU. Card payments accounted for almost 40% of all transactions in 2008, while credit transfers and direct debits accounted equally for most of the remainder.
The corresponding total value of transactions decreased by around 18% to €259 trillion. Credit transfers accounted for almost 90% of the total in 2008, while the remainder was generated primarily by direct debits (6%) and cheques (3%). The average value per transaction decreased by 20% to €3,315, partially due to exchange rate effects. -
16/07/2009
The Eurosystem – the European Central Bank (ECB) and the 16 national central banks of the euro area – has signed a Memorandum of Understanding with 27 European central securities depositories (CSDs). The Memorandum of Understanding shows the commitment towards the TARGET2-Securities (T2S) project and sets out the mutual obligations and responsibilities of the CSDs and central banks in preparation for the next important stage of the project, which will involve a contractual agreement on building T2S.
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02/06/2009
Clearstream Banking Frankfurt (CBF), dépositaire central de titres pour le marché allemand, et Clearstream Banking Luxembourg, dépositaire central pour le Luxembourg, signeront le protocole d’accord (MoU) présenté par le Conseil des gouverneurs de la Banque centrale européenne (BCE) et relatif à TARGET2-Securities (T2S), le nouveau service de l’Eurosystème pour le dénouement des titres.
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15/05/2009
The European Central Bank (ECB) is today publishing the TARGET Annual Report 2008. This ninth issue of the report takes account of the developments which took place in TARGET in the course of 2008.
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25/11/2008
Only available in English.
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24/11/2008
On November 24, the ABBL presented its white white paper on the impact of Target 2 Securities (T2S) on the Luxembourg financial centre to its members.
