- T2S will provide a single pan-European platform for securities settlement in central bank money, with the first wave going live in June 2015
- Survey by ICMA European Repo Council and GFT shows majority of market participants are aware of the operational implications of T2S and have plans underway
- Operations, funding and front-office staff are anticipating positives from T2S; network managers are more cynical
- T2S is seen to have the biggest impact on collateral pooling, increased liquidity, tri-party interoperability and a decrease in the number of agent banks
GFT and the ICMA European Repo Council have released the results of an industry-wide survey to assess market preparedness and industry attitudes towards Target2-Securities. The survey results provide insights on industry participants’ current understanding of T2S, their level of practical engagement and their understanding of the consequences of T2S to their individual firms.
The majority of respondents (75%) agreed or strongly agreed that they were aware of the implications of T2S, with less than 20% believing that doing nothing was a viable option. More than 80% of respondents felt that T2S will have a significant impact on their organisation. One surprising and concerning message is that the types of firms who perceived T2S as having less impact included Custodians and Central Banks.
Most business areas anticipate benefits from T2S. 71% of operations staff and 62% of funding staff see positives. Network Management respondents were more cynical with only 45% seeing benefits. In the front office, 44% of cash traders and 55% of repo traders see benefits. For repo traders, benefits are likely to include increased liquidity collateral via more efficient settlement and harmonisation of settlement deadlines.
The majority of respondents have plans and initiatives underway in response to T2S, with many reviewing their Network Management and Custodian arrangements. Survey responses indicated that the bulk of the organisational changes in preparation for T2S are in the payments and cash management areas of organisations (62%).
When it comes to benefits, 77% believe T2S will result in a greater pool of collateral and increased liquidity across the industry, 66% believe in greater tri-party interoperability and 51% in a decrease in the number of agent banks.
On connectivity, most organisations (including sellside firms) are planning on connecting to T2S indirectly i.e. Indirectly Connected Party (ICP), but this is still felt to have major impacts on technology. However, the majority of respondents feel that costs will either not change at all or increase.
Emily Cates, specialist in operational processing, GFT commented: “The survey results should give industry participants comfort that the implementation of T2S is well understood. Areas seeing benefits in T2S include Operations and Cash Management, likely a result of the opportunity to simplify settlement and funding mechanisms by reducing the custodian bank network. Front Office are bullish too: the benefits of improvements to collateral liquidity are likely to be the driver. Over 80% of respondents feel there is significant impact of T2S. That needs careful planning. The time for action is now.”
Godfried De Vidts, Chairman of ICMA’s European Repo Council, adds: “We will use the survey results to help guide and shape our approach in the provision of T2S information, and give guidance and training to our members. The market now sees that T2S will improve settlement efficiency, timeliness and remove complexity. However, we do wonder if T2S represents a missed opportunity for repo for it will not improve repo end leg settlement nor lifecycle events.”