If we are to achieve true Economic and Monetary Union in Europe, having a single currency is not enough. There are many differing practices across Member States that continue to make cross-border activity expensive, complicated or both. One area that needs further harmonisation is financial market infrastructure. The good news is that we are on the right track! In June of this year, TARGET2-Securities, or T2S, was launched. But what exactly is T2S? Marc Bayle, Director General Market Infrastructure and Payments at the European Central Bank, tells us a bit more about it.

A new platform

Following on from TARGET (now TARGET2) – the Eurosystem’s real-time gross settlement system for settling payments in central bank money, launched in 1999 – it was decided that a similar platform should be developed for settling transactions involving securities. And so T2S was born. This platform will ensure the delivery of securities to the buyer and cash to the seller across all European securities markets.

T2S went live on 22 June with the completion of the first migration wave, made up of five central securities depositories. A further 21 markets will join the platform over the course of the next 18 months. T2S is also open to other currencies besides the euro – Danmarks Nationalbank will make Danish krone available for settlement in T2S as of 2018.

A key factor in the success of T2S is the collaboration between the public and the private sector. The market was involved throughout the entire development process, which meant that the platform could be shaped to meet the needs of its users and the knowledge and experience of a wide range of players could be drawn upon to achieve the best possible final outcome.

Why we need T2S

With banks facing increasing regulation and stricter collateral requirements, liquidity and collateral management is more important than ever. T2S enables banks to hold a centralised pool of securities, or collateral, making it easier for them to move collateral to exactly where it is needed at any given time.

In addition, the standardised pricing in T2S means that cross-border securities settlement can now cost the same as domestic settlement. T2S has also paved the way for greater competition between central securities depositories, which now have access to a wider market.

Generally speaking, reducing the complexity of Europe’s post-trade landscape should make Europe a more attractive place for investors, both within the European Union and outside.

The development of T2S has helped drive the post-trade harmonisation agenda in Europe forwards. Now we need to build on this momentum in other areas of the financial market landscape. The European Commission’s Capital Markets Union project will help create deeper financial integration, bringing us ever closer to the goal of a truly Single Market in Europe.

For more information on how T2S helps banks with their collateral management, see this video.

For more information on T2S, let this grandma do the explaining.