T2S: two months after launch

T2S: two months after launch 2nd Annual Post-trade Forum,

Vienna, 10 September 2015

Meike Ströter European Central Bank

Katharina Tobiasch Deutsche Bundesbank

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https://youtu.be/uwNuFLXQK4U

T2S – Europe’s single securities settlement engine

T2S in operation 2

1 T2S is live!

3 Bundesbank’s role in T2S

4 T2S harmonisation

Table of contents

5 Programme plan

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4CB at Bundesbank 4CB (Banca d’Italia) with

T2S Programme Office

Live from the migration weekend

T2S successfully launched

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• On 22 June 2015 T2S – the Eurosystem‘s

landmark platform for securities

settlement started live operations.

• 8 central banks provide liquidity for

securities settlement in T2S (France,

Germany, Greece, Luxemburg, Malta,

Netherlands, Romania plus the ECB)

• A first group of CSDs and their user

communities from Greece, Malta,

Romania and Switzerland migrated to T2S. © Alexandra Lechner

Monte Titoli joining

Monte Titoli and the Italian market successfully connected to the

T2S platform on 31 August 2015.

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What is TARGET2-Securities?

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Eurosystem product to provide harmonised and commoditised delivery-versus-payment (DvP) settlement

• on a real-time basis

• in central bank money

• in euro (and other currencies)

Integrated model, but run by the central bank rather than by the CSD

Integration of cash and securities legs on one single IT platform

T2S is no (pan-European) CSD

• T2S will serve only as a provider of settlement services to CSDs

• CSDs continue to operate and provide their other services (custody, asset servicing, taxes….)

• Contractual relationship only between T2S and CSDs

• Market participants still contract with the CSD(s)

The T2S integrated model

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CSD A

CSD B

CSD C

T2S SETTLEMENT

ENGINE

Securities CeBM

Accounts CSD A

T2S

SETTLEMENT INSTRUCTIONS

Accounts CSD C

Accounts CSD B

Accounts Central Bank A

Central Bank A

Central Bank B

Central Bank

C

Accounts Central Bank B

Accounts Central Bank C

Accounts Central Bank A

Accounts Central Bank B

Accounts Central Bank C

CeBM

CeBM

TARGET2

Non - € RTGS

CeBM = central bank money

A project for whole Europe – more than 20 CSDs participating!

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CSDs Eurozone Austria Belgium

Estonia Finland France Germany Greece* Italy Lithuania Latvia Luxembourg Malta Netherlands Portugal Slovenia Slovakia Spain

EU CSDs Denmark Hungary Romania

Non-EU CSDs

Switzerland**

*Greece – government bonds **Switzerland – euro business

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1

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Table of contents

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T2S in operation

T2S is live!

Bundesbank’s role in T2S

T2S harmonisation

Programme plan

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Two months after its launch, the T2S platform has proven to be stable.

It experienced only few technical issues within the normal range of what we would expect,

which were resolved in due time. Since the very start of T2S live operations, the settlement

process has been very smooth.

Stability of the platform

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Business continuity model

4 sites/ 2 regions concept in detail:

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Business continuity in practice

Permanent connection to the

colleagues in Italy via video

conference

Operational teams in Frankfurt and

Italy work closely together

- One team is responsible for the

test environments

- The other team is responsible

for the production

Regular changes of

responsibilities to guarantee best

knowledge on both sides

© Alexandra Lechner

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3

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Table of contents

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T2S in operation

T2S is live!

Bundesbank’s role in T2S

T2S harmonisation

Programme plan

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Bundesbank experiences from migration and operation

Bundesbank participated in the migration weekends of 22 June 2015 and 31 August 2015 in its roles as provider of central bank liquidity and collateral manager.

• From Bundesbank point of view both migration weekends were a success

• The processes and interaction as jointly prepared by the migrating CSDs and Central Banks and as previously tested proved to work

Since the go-live T2S – including its connection to TARGET2 – is running smoothly.

• Neither Bundesbank and nor its customers faced any (major) (operational) issues

Key success factors

• Proper preparation and performance of testing

• Start of customer preparation early in advance (e.g. via specific information sessions as well as bilateral support on individual basis)

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Part of the Eurosystem

Member of the 4CB (developing and operating T2S)

Provider of central bank money

User of the settlement service (customer of Clearstream)

Plus :

Central banks’ financial stability task

Bundesbank’s roles in T2S

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The 4CB as developer and operator of T2S

Governing Council Decision (17 July 2008)

“The Governing Council of the European Central Bank (ECB) decided to launch the TARGET2-

Securities (T2S) project and to provide the resources required until its completion. It also decided to

assign the development and operation of T2S to the Deutsche Bundesbank, the Banco de España, the

Banque de France and the Banca d’Italia.”

© Alexandra Lechner T2S Control Center – Bundesbank‘s Technical Team and Operational Team premises

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Provision of central bank money in T2S

CSD A

CSD B

CSD C

T2S SETTLEMENT

ENGINE

Securities CeBM

Accounts CSD A

T2S

SETTLEMENT INSTRUCTIONS

Accounts CSD C

Accounts CSD B

Accounts Central Bank A

Central Bank A

Central Bank B

Central Bank

C

Accounts Central Bank B

Accounts Central Bank C

Accounts Central Bank A

Accounts Central Bank B

Accounts Central Bank C

CeBM

CeBM

TARGET2

Non - € RTGS

CeBM = central bank money

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Bundesbank as provider of central bank money

T2S Dedicated Cash Accounts (DCAs) funded by TARGET2 accounts

Provision of intraday credit via auto-collateralisation

Facilitates the settlement of underlying securities-related instructions that

would fail due to lack of cash

Triggered automatically whenever the buyer has insufficient funds to settle

securities transactions

Intraday credit provision is collateralised with securities…

• …already held by the creditor (collateral-on-stock)

• …through collateral-on-flow (through the eligible securities that are being

purchased)

Automated substitution functionality

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Enhanced liquidity and collateral management

Focus of market participants has shifted from efficiency and savings in

cross-border settlement

Optimisation of liquidity management due to liquidity pooling and auto-

collateralisation

• Netting effects across all T2S markets

• Liquidity buffers in various national markets become redundant

• Auto-collateralisation across all T2S markets reduces liquidity needs

Less collateral needed

Optimisation of collateral management

• Efficient mobilisation of collateral cross-border

Right collateral at the right time at the right place

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Bundesbank‘s offer to Payment Banks

In order to allow its payment banks to benefit from the T2S opportunities,

Bundesbank offers its services to Payment Banks already since the go-live,

although Clearsteam will only migrate in Wave 3 (September 2016).

1. Opening of DCAs

• Liquidity pooling is possible since 22 June 2015.

• In wave 1 in total 10 DCAs have been opened in the books of Bundesbank by 9

Payment Banks.

2. Auto-collateralisation

• Provision via the „interim solution“ since 31 August 2015.

• In wave 1 3 Payment Banks use auto-collateralisation via Bundesbank.

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Relation to central banks’ financial stability task

CeBM = central bank money

T2S is a very critical system for the European financial industry

the functional design fosters financial stability

s Settlement in risk free central bank

money

(real-time/batch)

business continuity concept

Shortened settlement chains

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Table of contents

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T2S in operation

T2S is live!

Bundesbank’s role in T2S

T2S harmonisation

Programme plan

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one transaction

many post trade

standards

high cost of cross-border

operations

T2S harmonisation

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3 reasons

T2S community asks strongly for this: Harmonisation is the added value of the T2S project.

Harmonisation supports the Lean T2S system specification. Keeps budget and time under control

Part of the EU single market agenda (financial integration)

T2S harmonisation

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T2S harmonisation

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Table of contents

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T2S in operation

T2S is live!

Bundesbank’s role in T2S

T2S harmonisation

Programme plan

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T2S Programme Plan: Where do we come from?

22 June 2015 – T2S started operations

Four CSDs of migration wave 1 started securities settlement in T2S together with their communities

On 31 August 2015 the Italian CSD Monte Titoli successfully migrated to T2S

In total 10 Central Banks provide liquidity for securities settlement in T2S

Three further migration waves will follow until February 2017

MAIN PHASES 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Preparation Phase

Specification Phase

Software Development & Integration Testing

Eurosystem Acceptance Testing

User Testing Phase

Phased Go-Live

Jul

2006

Jul

2008

Jul

2008

Sep

2012

Apr

2009

Sep

2014

Jan

2017

22 June

2015 Feb

2017

✰

Mar

2014

Mar

2014

Jun/Oct

2014

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T2S migration waves T2S – A great deal of work has been done …

© Nadine Knaust

A major milestone was achieved with the

successful go-live of wave 1 CSDs, NCBs and

their communities

Considerable efforts yet to make for

everyone involved until spring 2017 to meet

the coming challenges:

operations,

testing,

another three migration waves …

… but there is still some way to go:

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wav

e 1

•Bank of Greece

Securities Settlement

System (BOGS)

•Depozitarul Central

(Romania)

•Malta Stock Exchange

•SIX SIS (Switzerland)

wav

e 2

•Euroclear Belgium

•Euroclear France

•Euroclear Nederland

•Interbolsa (Portugal)

•National Bank of

Belgium Securities

Settlement Systems

(NBB-SSS)

wav

e 3

•Clearstream Banking

(Germany)

•KELER (Hungary)

•LuxCSD

(Luxembourg)

•Oesterreichische

Kontrollbank

(Austria)

•VP Lux

(Luxembourg)

•VP Securities

(Denmark)

wav

e 4

•Centrálny depozitár

cenných papierov SR

(CDCP) (Slovakia)

•Eesti

Väärtpaberikeskus

(Estonia)

•Euroclear Finland

•Iberclear (Spain)

•KDD - Centralna

klirinško depotna

družba (Slovenia)

•Lietuvos centrinis vertybinių popierių depozitoriumas (Lithuania)

•LCD - Latvijas

Centralais

depozitarijs (Latvia)

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T2S migration waves

• Monte Titoli (Italy)

31/08/2015

Next migration waves

T2S migration waves

Migration of Central Banks

• Central banks migrate their transaction business along with

their “home CSD”.

• But: cash accounts for settlement in T2S opened as of

wave 1 if needed by Payment Banks

• Auto-collateralisation as from migration of “home CSD” or

earlier via the „Interim Solution“

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Client readiness dashboard Next migration waves

Client readiness Dashboard

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Eurosystem ready for user testing

1 Sept 2014

Ready to start connectivity set-up

1 Aug 2014

Bilateral inter-operability testing

1 Oct 2014

Multilateral inter- operability testing

May 2015

Community testing Sep 2015

Migration to T2S 28 Mar 2016

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Key milestones for wave 2 & 3

Multilateral inter- operability testing

June 2015

Community testing Feb 2016

Migration to T2S 12 Sep 2016

Common for

all waves

Wave 2

Wave 3

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Further challenge for Bundesbank: preparation of the migration of wave 3

• The majority of the German market will migrate to T2S together with the German CSD Clearstream in September 2016

• Wave 3 participants are being prepared by the Bundesbank (as regards the cash side) and by Clearstream (as regards the securities side) to ensure their readiness for testing and migration

Bundesbank offers general information sessions, dedicated workshops and individual support to its payment banks

Information on previous information sessions and further information (e.g. registration, test cases) can be found under the following link: https://www.bundesbank.de/Navigation/DE/Aufgaben/Unbarer_Zahlungsverkehr/TARGET2_Securities/target2_securities.html

• In wave 3 Bundesbank also migrates to T2S in its role as CSD participant

The necessary adaptations of the internal systems and operational processes are well on track

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Thank you very much!

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