Firms face multimillion bill to address gaps in industry plans for T2S
T2S will transform the European post-trade scene
There are “major discrepancies” in firms’ readiness for the implementation of Target2-Securities that leave “significant gaps” in the industry’s plans, according to new research carried out by Celent and Swift.
The implementation of the Target2-Securities platform by the European Central Bank, coupled with the impact of the Central Securities Depositary Regulation proposed by the European Commission, will require market participants to undertake a thorough review of their current back office system capabilities, and invest anywhere between €7 million and €27 million each.
The research, based on detailed interviews with major participants in the European post-trade environment, found that the post-trade providers most affected by T2S – CSD and custodians – are the most advanced in their preparation. However, market participants that will be impacted to a lesser extent, such as banks and broker/dealers, are still navigating the complexity of T2S.
“We have found that while most market participants have a good high-level understanding of the T2S platform, there are some significant gaps in the industry’s T2S adaptation plan,” says Axel Pierron, the author of the report, The European Post-Trade Ecosystem under T2S: Dealing with Complexity.
While the long-term benefits of T2S in improving the efficiency of the European capital markets are clear, the report looks closely at the short-term challenges that banks, CSDs and custodians are facing. It estimates that the level of investment required to adapt a back office to the T2S ecosystem will range from €7 million for a market player that modifies its existing system using a communication hub plus adaptation layers to as much as €27 million for a player that decides to revamp its back office systems for both settlement and custody.
A significant portion of IT investment for T2S will be driven by communication complexity, the report finds. “Market participants will have to operate in an ecosystem that relies on disparate messaging formats, and where many local specificities remain. This situation not only generates additional cost but also raises some concerns about the operational risk incurred by market participants in case of communication failure and mismanagement,” it states.
Alain Raes, chief executive for EMEA and Asia Pacific at Swift, said: “Celent has clearly confirmed that many players require more information about the impact of T2S on their business models and operations. This new report provides excellent insight on the questions market participants must answer as they determine their approach to T2S readiness. It comes at just the time when the industry really needs to be able to tap into recognised sources of solutions and expertise, to help create standardised, streamlined and robust post-trade communications infrastructures, and support cost-effective, efficient adaptation to major market change.”
