ECB tweaks T2S migration schedule

Despite delays and arguments over migration, the European Central Bank’s T2S project to improve Europe’s post-trade infrastructure is now back on track, according to industry participants.

Godeffroy: migration in 2015

T2S was originally scheduled for 2014 implementation. However, during Sibos 2011 the ECB announced that the go-live date would be pushed back to June 2015. The latest agreement, according to T2S Board chairman Jean-Michel Godeffroy in the ECB’s T2S OnLine quarterly review for Autumn 2012, is that migration to T2S will take place in 2015, with final implementation complete by 2016.

Adding to the timetable complexity is a recent announcement that SP3, the third synchronisation point of T2S, will now take place in April/May 2013, rather than before the end of 2012 as previously planned. In addition, some observers had voiced concerns that during the migration to T2S, the Euroclear and Clearstream groups, which form around two-thirds of T2S volumes, were scheduled to migrate as part of the same wave – potentially increasing the risk associated with the migration.

However, Denis Peters, director of marketing and communications at Brussels-based post-trade services firm Euroclear, insists that SP3 has no impact on the final date for T2S as a whole. Moreover, he insists that the problem of risk concentration in the third wave of T2S migration, which would also have included CSDs in Germany, have now been resolved.

“This is not a major problem for us,” he said. “We have decided to move forward the migration of three of our CSDs – Belgium, France and the Netherlands – to July 2016, while Finland will move in November 2016. This is to avoid there being too many high-volume CSDs migrating at once.”

Nevertheless, the ECB is still cautious about the second wave of T2S migration. The organisation’s Autumn 2012 document states that while the organisation would have preferred a migration date prior to July 2016 for the second wave of migration, it cannot force a CSD that has indicated a preferred migration date to advance it.

Part of the difficulty of the move towards T2S is the number of change requests submitted by the CSDs as part of the process. Some 34 requests were raised by the CSDs as part of their feasibility assessments. Of these, four are now being assessed by the ECB, which will ultimately decide whether or not the proposed changes will be implemented in practice.

“The Board’s decision will be driven by the very strict approach established by the governing council of the ECB, according to which a change request can be approved for the first release of T2S only if its adoption is indispensable for the proper functioning of the platform,” saidthe ECB document.

Another problem for T2S has been the difficulty of estimating the cost of the project. Last month, Alain Raes, chief executive EMEA at Swift, estimated the price tag for T2S at up to €3 billion. According to Tony Freeman, global head of industry relations at post-trade services company Omgeo, the benefits of T2S were always going to be realised over the longer-term, rather than immediately.

Freeman: T2S savings eroded by market conditions

“T2S was put forward by the ECB as a public good, to create the kind of efficiencies in settlement that people had hoped would result from the euro,” he said. “The expectation in the industry was that there would be fewer CSDs, settlement would become commoditised, and costs come down.”

Freeman points out that with the decline of equity trading volumes since the project was originally drawn up, the cost savings brought about by T2S may be lower per unit than planned. European equity trading volumes have fallen from €1.253 trillion in October 2008 to €651.636 billion in October 2012, according to figures provided by Thomson Reuters. That means that even with the lower unit cost offered by a more streamlined settlement regime, it may take longer to recoup the costs of T2S migration.

“It’s hard to gauge what the cost will be, and volumes are uncertain,” he said. “The benefits aren’t going to materialise overnight, but the long-term picture is that Europe’s post-trade environment will be simpler and cheaper, even if it never reaches quite the same level of harmonisation as the US.”

Despite the difficulties, recent months have seen major financial institutions moving closer in their preparations for T2S. In November, Citi chose to use Swift’s Value Added Network service to connect to the project. Swift holds a connectivity licence for T2S, and will build the network that will link CSDs with the ECB and charge fees to users.