Eurobonds and securities from non-T2S markets will now be eligible for settlement under TARGET2-Securities, following plans from Clearstream.
In a statement, the firm said that this expansion will be achieved by using the network of cross-border links to non T2S markets of its international central securities depository (ICSD).
Clearstream will make its ICSD-issued securities (ie, Eurobonds) and also securities issued outside Europe available via T2S, which “represents a significant expansion of scope compared to the original universe of the T2S project”, said the firm.
“Clearstream’s decision will therefore further contribute to the harmonisation of cross-border flows in Europe and beyond.”
So far, 24 central securities depositories (CSDs) have committed to join T2S. Based on today’s figures, the German CSD will account for approximately 40 percent of the future T2S settlement volumes, and therefore Clearstream—both as CSD (in Germany and Luxembourg) and ICSD (global)—will use it as credible access point to T2S.
This means that through Clearstream’s single network approach, which combines the CSD and ICSD network capacity, T2S settlements in EUR central bank money via the German CSD could go beyond the European markets to include securities issued, eg, in Asia or Australia.
This development will offer customers greater flexibility while maximising the liquidity of their securities, said Clearstream.
Mark Gem, head of business management and strategy and member of the executive board of Clearstream, said: “Clearstream’s strategy for TARGET-2 Securities (T2S) aims to enable the market to achieve significant savings on the indirect costs imposed by today’s fragmented settlement landscape in Europe. Chief among these is the potential to concentrate collateral holdings by ensuring optimal collateral mobility between participants.”
“But the liquidity costs associated with the cash side of settlement have been overlooked by many, including T2S stakeholders, until now. Today, participants are forced to settle the cash side of settlement instructions in each market separately despite the fact that we have had a single currency and a single payment system for some years. A key potential benefit of T2S that our strategy aims to unlock is to enable clients to settle from a single EUR treasury position, whether that is held in the TARGET2 payment system, with a commercial correspondent or with an ICSD.”
“Clearstream will enable significant savings on the direct costs of settlement by passing on T2S fees at no margin. But the twin indirect savings that market participants will be able to realise through collateral mobility and liquidity efficiency are even more significant. That is the reason why we have decided to ensure that Eurobonds and all other products in Clearstream’s ICSD network will be eligible for settlement in T2S”.
