European Central Bank Official Predicts Single Securities Settlement Regime

The best route to a single cross-border transparent securities settlement system in which real time settlement in central bank money is provided across accounts is the Target2 Securities Initiative. This was the view espoused recently by European Central Bank member Gertrude Tumpel-Gugerell. T2S is a proposal to overcome the fragmentation in the EU market for securities settlement by providing a harmonized cross-border settlement platform. T2S is designed to reinforce other EU initiatives, such as the Code of Conduct for clearing and settlement, in driving forward the single market objectives.

Noting that there is little benefit in preserving a multiplicity of competing platforms, the official emphasized that integration and harmonization have become core objectives of the European Union. She added that the European financial industry must have access to an efficient, state of the art financial infrastructure supporting a true single market.

In this respect, said the official, T2S will deliver a significant amount of settlement harmonization in important areas such as common interfaces, a common set of rules for intra-day settlement finality, and a common daily timetable. T2S combines cash and securities settlements in a single shared platform in real time to provide a single settlement platform for securities in central bank money, irrespective of the location of the issuer, the security or the settlement counterparty. This will create a single pool of securities available to market users and service providers. In her view, T2S will also lead to more transparent and efficient pricing and facilitate competition to provide cross-border trading venues.

As noted by the ECB member, T2S is designed to build on the Code of Conduct adopted by the clearing and settlement industry. The EU Commissioner for the Internal Market Charlie McCreevy has praised the new code as an important step in the creation of an efficient EU financial market. He also said that the Commission will closely monitor the code’s implementation, which became key once the EC decided to go the more risky self-regulation route.