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2 TARGET2-Securities Washington, May 2007 Denis Beau Deputy Director Payment Systems and Market Infrastructure, Banque de France

3 Introduction  T2S is only one of several initiatives put forward by public authorities of the EU to improve the post-trading infrastructure of EU capital markets(removal of “Giovanni barriers”, ESCB-CESR, Code of Conduct)  T2S is a technical platform to be provided by the Eurosystem to CSDs to execute settlement instructions in central bank money  The decision to develop or not the T2S platform will be taken early next year

4 Outline 1.Why? 2.How? 3.When?

5 8 years after the launch the integration of market infrastructures remains to be completed: 11 CCPs 21 CSDs Significant differences in technical requirements/market practices/taxation/legal rules for ownership transfer.. Diverging strategies of market participants to develop further the integration: Development of links between systems Horizontal integration ( eg Euroclear, LCH.Clearnet) Vertical integration (e.g Clearstream) 1. Why?

6  cost of this lack of integration Source: Oxera, LSE, CEPS Settlement Costs 1. Why?

7 Benefits expected from T2S ­Efficiency of settlements improved:  Consolidation into one single platform processing both cash and securities  Based on the most efficient model  No more difference between cross-border and domestic, ­Costs reduced: mutualisation of investment and running costs ­Competition fostered since CSDs, which will retain their current role vis-a-vis their participants, will be able to offer added-value services (tri-party, securities lending…)

8  T2S creates two main sources of cost savings to market participants: Reduction in the number of settlement engines at CSD level Reduction in CSD infrastructure costs Reduction in custodian back-office costs (number of interfaces) Reduction in domestic (CSD) fees Reduction in cross-border (custodian) fees

9 Outline 1.Why? 2.How? 3.When?

10 CSD Custody Other… ReportingLending Coll. Mgmt Settlement CSD Custody Other… ReportingLending Coll. Mgmt T2S Settle- ment T2S world It provides a common settlement facility T2S does not segregate custody and settlement… CSD operations today 2. How?

11 The concept: securities and cash accounts in one platform T2S CSD A CSD B CSD C T2S SETTLEMENT ENGINE SECURITIES TARGET2 CASH CSD A ACCOUNTS NCB C ACCOUNTS CSD C ACCOUNTS CSD B ACCOUNTSNCB B ACCOUNTS NCB A ACCOUNTS NCB A NCB B NCB C TARGET2 2. How?

12 Outline 1.Why? 2.How? 3.When?

13 Phase 1 Phase 2 Phase 3   User Requirements  Detailed Functional Specifications (DFS)  Architectural Specifications  Decision on Migration Policy March 2007  T2S Development & Implementation  Units and Modules Testing  Fine Tuning (DFS)  UAT Testing  Integration, performance, interface & back up testing  Migration Options  Final Deployment T2S Production March 2013 Governing Council Decision Public consultation 3. When?

14 Governing Council decision 8 March 2007 Feasible to build T2S Move to next phase (user requirements) Decision on development phase: early 2008 also T2S built on TARGET2 Regular and transparent interaction with stakeholders Centralised collateral system to replace CCBM Governing Council decision 26 April 2007 Launches the public consultation on the general principles and proposals Approves UR phase Governance Preparation of UR by the end of 2007 and second consultation thereafter 3. When?

15 Objectives of the next phase Consult the market on principles, needs and expectations Define the T2S User Requirements ­ In cooperation with all T2S stakeholders Prepare decision of CSDs to commit to T2S or not Keep all stakeholders involved in the process Refine the cost/benefit evaluation 3. When?

16 T2S Advisory Group Co-ordination Group Scope & Schedule National User Groups ECB Governing Council Lifecycle & Matching Settlement Functionality Static Data Interfaces Non-functional requirements Executive Board PSSC 3. When? Information Sessions with all Stakeholders Six Technical Groups  Governance of the project

17 Conclusions  Objectives of T2S:  To contribute to the integration of European post-market infrastructures  To provide efficient and harmonised settlement services in central bank money  To reduce the cost of securities settlements  To contribute to harmonisation of market practices  Complementarity between the initiatives of the Commission and those of the ECB/Eurosystem  Complementarity between T2, T2-S and CCBM2

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