Target2 Securities (T2S) is a project by the European Central Bank (ECB) which aims at centralising on a single pan-European platform the settlement operations in the post-trade value chain for almost all types of securities, thereby facilitating cross-border settlement and settlement efficiency. This should be achieved by offering to the European market centralised delivery-versus-payment (DvP) settlement in central bank money. T2S is live since 2015 and has already achieved to significantly reduce settlement costs. The single T2S platform is operated by the European Central Bank, to which European Central Security Depositaries (CSD) can outsource their settlement operations. Another way to frame the T2S project is to consider it as a large-scale IT outsourcing contributing to the cost reduction for cross-border settlement in Europe.
In order to reach an efficient cross-border settlement in Europe, the T2S project applies 19 General Principles developed together with the market. It notably makes cross-border settlement identical to domestic settlement regarding costs, technical processing and efficiency. As such, a single set of rules, standards and tariffs applies throughout Europe for settlement, contributing to final and safe cross-border settlement. By using DvP on a real-time gross basis, counterparty risk is eliminated. Furthermore, by using central bank money (i.e. the transfer of cash between participants’ accounts held at the respective national central banks), the settlement agent risk is equally reduced to zero.
As mentioned before, the T2S system is designed as a service for CSDs, rather than a CSD by itself. As such, the CSD will be the only party contractually involved with the ECB. The CSD will remain responsible for the relations with their clients. Except from the settlement, all the other post-trading value chain activities will still be operated by CSDs, like custody, asset servicing, corporate actions processing, tax and regulatory reporting.
In Luxembourg, both VP Lux and LuxCSD have in the meantime migrated to the T2S platform. Luxembourg is also strongly involved in the T2S development and governance. Luxembourg is represented in the T2S Advisory Group, on a case-by-case basis in T2S working groups, in the T2S Board and in the ECB Governing Council. The ABBL, has been following the T2S initiative, and is actively involved in the T2S National User Group (NUG).
Further information on the T2S project can be found in the official documents accessible via the ECB website.