ABBL

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 2015 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.

Luxembourg 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.

On 8 May 2012, the Eurosystem (composed of the European Central Bank and the national central banks of the euro zone member states) and a first group of nine European central securities depositories (CSDs) signed the Target 2 Securities Framework Agreement. There are two Luxembourg CSDs among this intial group of nine: LuxCSD and VP Lux.