With less than a year to the 2015 launch, progress in TARGET2-Securities (T2S) and post-trade reporting were the key sessions at the European Clearing and Settlement conference in London.
With less than a year to the 2015 launch, progress in TARGET2-Securities (T2S) and post-trade reporting were the key sessions at the European Clearing and Settlement conference in London.
As testing continues with the Eurosystem Acceptance Testing to assess the quality of T2S, one keynote speaker said T2S was “progressing well”.
To date, 24 central security depositories (CSDs) that have signed up to T2S are preparing for the 22 June 2015 launch, which will be completed in four migration waves. The waves will introduce the CSDs in stages so as to not overwhelm the start of the T2S system.
With Denmark’s central bank set to be the first non-euro currency joining T2S in 2018, the platform’s horizons look “likely to expand globally”, but for now are limited legally to European boarders.
Questions from the audience centred on possible technical difficulties with T2S once it goes live and if plans had been put in place. It was reassured that the risk of T2S not working was extremely low and that “backup hard drives” are available as a precaution.
The speaker acknowledged that T2S is a challenge: “Yes, T2S is huge, it’s challenging, [but] we are on [the right] track. We can only succeed if the whole T2S community is contributing and supporting the effort. We have a good indication that this is the case because we are closely monitoring out clients readiness and the corporation is in really good shape.”
Since the Euro crisis, banks have struggled to keep up with the fast-paced turnaround of regulation and legislation, with post-trade reporting splitting views on one panel. The European Market Infrastructure Regulation (EMIR) came into play earlier this year, yet one panellist reported that his firm “struggles to get an understanding” of the reports as they are not properly clarified.
In a later session, it was suggested that the EMIR reporting system would be reviewed next year as “the current regulation does not cover all of the G20 agenda”. A second panellist added that it is “important for regulators to make data requirements [of reports] clear to reduce the risk of firms being fined for wrongly collected data.”
In a separate session on regulatory change, Markets in Financial Instruments Directive (MIFID) II was deemed “the next big bang in regulation”. Set to come out at the beginning of July, MIFID II will bring in new rules for execution venues, transaction reporting, transparency, commodities and the whole investment protection agenda.
The session also touched on over-the-counter (OTC) collateral reforms in a recently published draft of technical standards from the European Commission. The potential for a collateral shortage, brought about by current regulations increasing demand and a shrinking pool of eligible collateral, could increase because the new reforms could lead to any collateral posted to custodians getting “stuck”, as it cannot be used again.
The new regulations have, at least, created a more competitive market with clients having more of a say in products. As transparency has increased, clients have become aware of the end-to-end costs, which lead to a decrease in fees as market participants compete against one another.
One panellist warned that, although markets are now subjected to the same standards that have ultimately decreased risk when launching a product, it is the members that have to manage the risk. As they have more say in what reaches the market, “it is up to the members to get the right product out there.”
