Target2-Securities (T2S)

Reducing counterparty risk in European securities markets

T2S (TARGET2-Securities) is a new European securities settlement engine which aims to offer centralised delivery-versus-payment (DvP) settlement in central bank funds across all European securities markets.

About T2S

T2S (TARGET2-Securities) is a new European securities settlement engine which aims to offer centralised delivery-versus-payment (DvP) settlement in central bank funds across all European securities markets.

The main characteristic of T2S is that it will make cross-border settlement identical to domestic settlement, in terms of cost, technical processing and efficiency. A single set of rules, standards and tariffs will be applied to all transactions in Europe, dramatically reducing the complexity of the current market infrastructure.

Advantages of T2S

It is hoped that cross-border fees will be considerably lowered, making the European securities markets more attractive and cost-effective.

The use of DvP on a real-time gross basis will eliminate the counterparty risk, ensuring that a participant’s counterparty fulfils its obligations. The use of central bank money, i.e. the transfer of cash between participants’ accounts held at the respective national central banks, will eliminate the settlement agent risk. In T2S, both the securities and cash legs of the transactions will be settled in DvP mode: the securities will only be delivered to the buyer when the cash is delivered to the seller.

How does T2S work?

T2S will ensure real-time DvP and settle across borders by employing the so-called “integrated model”: both securities accounts and cash accounts will be integrated on one single IT platform, so that only one interface will be necessary between the CSDs and the T2S platform. T2S will accommodate both the market participants’ securities accounts, held at either one or multiple CSDs, and their dedicated central bank cash accounts, held with their respective national central bank. The dedicated cash accounts will be used exclusively for settlement purposes in T2S and will be linked to the participants’ cash accounts held in TARGET2 or another non-euro central bank RTGS account.

The use of an “integrated model” will allow T2S to connect any securities account at any participating CSD with any cash account at any participating central bank, within the same currency.

T2S will offer a set of advanced technical features that will make it one of the most sophisticated settlement engines in the world: advanced optimisation algorithms to enhance settlement efficiency, state-of-the-art auto-collateralisation mechanisms leading to considerable liquidity savings, a wide range of liquidity management services through the dedicated cash accounts, and direct connectivity, i.e. the possibility for banks with large settlement volumes to have a direct network connection to the platform (under the rules and procedures defined by their CSD).

For more information about Target2-Securities, please visit the ECB website.

 

Last updated: 5 June 2015