0. Payment and settlement systems - changing dynamics
Reserve Bank of India Pune, 30 September – 1 October 2013
T2S Programme Office
European Central Bank

1. Table of Contents Global trends in the field of market infrastructure
Payment and settlement systems – changing global dynamics
Global trends in the field of market infrastructure 3
Use of global standard for local systems 2
European context and challenges 1

2. EU: a single market An area without internal frontiers where goods
persons
services
capital
can circulate freely.

3. SEPA for retail and card payments
Cashless payments in euro in the EU (EEA) should become as easy, efficient and reliable as domestic payments
“One account, one card, one terminal”

4. EU Fragmented Infrastructure
In securities and large value payment market infrastructure

5. EU Fragmented Infrastructure
Securities Market Infrastructure in numbers
trading
reporting
clearing
settling
65 regulated markets
1 trade repository
9 CCPs
25 CSDs
58 multilateral trading facilities
3 systemic internalisers

6. EU market infrastructure challenges
The integration of European market infrastructure is a political priority for EU governments
Major efforts are being made to facilitate integration, through harmonisation and interoperability
Usage of global standards is a must
Three actions possible for ECB/Eurosystem: regulations, catalyst for change, operator of market infrastructure

7. Table of Contents Global trends in the field of market infrastructure
Payment and settlement systems – changing global dynamics
Global trends in the field of market infrastructure 3
Use of global standard for local systems 2
European context and challenges 1

8. Use of global standards
Providing an integrated market infrastructure
For EU…
ISO 20022
a common
element
A common platform for payments large value: TARGET2
A common securities market infrastructure: T2S
Standardising retail payments for creating a single euro payment area (SEPA)

9. 2nd user consultation and provision of GFS
Use of global standards
TARGET2 migration to ISO 20022
2013
2014
2015
2016
2017
2018
Go-live
1st user consultation
2nd user consultation and provision of GFS

10. Use of global standards
Maximising the reuse of investments for market participants
There were a number of initiatives in Europe related to ISO already before TARGET2 approved its migration strategy:
SEPA: the Single Euro Payments Area has replaced domestic retail credit transfers and direct debits with standardised European payments by using ISO messages
T2S: as announced by the T2S program, ISO messages will be used from the outset (new messages had to be developed for T2S, as no international standards previously existed)
EU: in the securities industry the EU is driven by the Giovannini Protocol, aiming at eliminating barriers that hamper efficient cross border activities in Europe (harmonising different standards and communication protocols is one way to achieve it)

11. ISO standard 20022: UNIFY Universal financial industry message scheme
Registration
Management Group
ISO users
ISO 20022
Registration
Authority
ISO Standards Evaluation Groups
TARGET2
T2S
ISO Financial Repository
Securities
Universal financial industry message scheme
CLS
Business models
Payments
Data Dictionary
SWIFT
Trade services
Candidate ISO messages
Euroclear
Forex
Business Process Catalogue
other
Cards

12. One integrated settlement process (domestic and cross-border)
Use of global standard
T2S: a business case
One integrated settlement process (domestic and cross-border)
Market Participant
CSD
CSD
NCB
Market Participant
Market Participant
Custodian
CSD
Market Participant

13. A Service offered to CSDs for Settlement only
Scope of T2S
Purpose of T2S
A Service offered to CSDs for Settlement only
Notary Function
Custody/ asset-servicing Function
Banking Function
Settlement Function
Registration of issuer indebtedness and investor holdings
e.g. coupon payments, redemptions, stock splits
Change of ownership among investors
e.g. lending and borrowing only in some (I)CSDs

14. Advantages of T2S for Europe
Purpose of T2S
A single pool of securities
To harmonise fragmented and inefficient financial markets
To enhance competition in settlement services
Making Europe a better place to trade and invest

15. Account Structure in T2S
Functioning of T2S
TARGET2
CENTRAL BANK
MONEY
VALIDATION and MATCHING
SECURITIES
OPTIMISATION of
SETTLEMENT
and
REALIGNMENT
CSD A
CSD B
CSD C
NCB A
NCB B
NCB B ACCOUNTS
NCB A ACCOUNTS
NCB C
Other RTGS
CSD A ACCOUNTS
CSD C ACCOUNTS
CSD B ACCOUNTS
NCB A ACCOUNTS
NCB C ACCOUNTS
Technical platform of all securities and cash accounts to settle all securities transactions in central bank money

16. Optimisation Features
Functioning of T2S
Reduction of the need for cash and securities on transactions to minimize the use of resources
Creation of extra liquidity for settlement via collateral on flow and stock
Notary Function
Technical netting
Autocoll-ateralisation
Partial settlement
Additional optimisation algorithms
Consideration of all transactions with equivalent ISINs to identify chains of transactions, empty circles, etc.
Splitting of transactions in the case of limited availability of resources

17. User Connectivity Functioning of T2S
Two T2S network providers to maintain competition:
Eurosystem licensing procedures led to selection of SIA/Colt and SWIFT as the two value-added network providers
Additionally, internet access in U2A mode is also planned

18. The T2S Programme Plan
Status quo of T2S
Start Mon 17/07/06
Finish Tue 31/07/17
SP17
SP13
SP6
SP5
SP4
SP3
SP2
SP1
T2S Go-Live
Migration Phase (SP )
User Testing Phase (SP7-12)
EAT
Development & Testing Phase
Specification Phase
Preparation Phase
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
We are here
Development of software for core functions is complete
Focus is now on testing

19. T2S Community
23 CSDs have confirmed their participation, representing nearly 100% of settlement volume in euro
T2S remains an open system: other CSDs can still join, but will have to pay an entry fee
So far only the euro and DKK (as of 2018) will be settled in T2S, but other currencies may join later

20. T2S governance since 1 July 2012
Status-quo of T2S
Decision-Making
Central Bank
Bodies
Non-euro central banks’ governors / boards
Governors’ Forum
ECB Governing Council
Steering
Level
Bodies
T2S Board
Non-euro Currencies Steering Group (NECSG)
CSD Steering Group (CSG)
Market
advisory
bodies
National User Group (NUG)
Advisory Group (AG)
Technical Groups
ECB
Reporting
Escalation
CRG reporting to CSG
Technical Groups reporting to T2S Board
Operations Managers Group (OMG)
Project Managers Group (PMG)
Change Review Group (CRG)

21. Financial Equilibrium in T2S
Status-quo of T2S
Tariff Structure
Investment cost
Volume estimates
PLUS
TIMES
Running costs
Prices

22. Market integration CSDR
A new securities settlement landscape
Three streams shaping the new European securities settlement landscape
CSDR

23. The new framework will lead to increased competition
A new securities settlement landscape
The new framework will lead to increased competition
T2S
CSDs regulation
Harmonisation
DVP will no longer be a bilateral relationship between one CSD and one NCB. Any CSD in T2S is potentially in a DVP relationship with any NCB in T2S
Same safety and efficiency rules all over Europe
Same market practice all over Europe: national boundaries will be broken down

24. Benefits for CSDs
A technologically advanced, state-of-the-art, and robust settlement engine
Economies of scale by pooling together settlement volumes across Europe
New business opportunities through access to new markets
Long-term savings from efficient re-shaping to T2S

25. Benefits for Users
Same processing and reduced settlement fees for domestic and cross-border transactions
Possibility to access all securities from one account in one CSD
Potential to optimise collateral and liquidity requirements
Reduced back-office costs by centralising settlement and thus streamlining interfaces
New business opportunities through access to new markets

26. Benefits for Markets
Higher level of competition in post-trade industry
A Single Market for financial services in Europe through harmonised clearing and settlement
Reduced settlement risks on cross-border transactions to positively affect financial stability
Investors can more easily diversify their portfolios
Issuers can more easily reach European investors
Reduced costs of capital for firms lead to economic growth

27. Use of global standards
Across products…
For outside EU…
ISO 20022
a common
Element?
Making Euro area market infrastructure more accessible for all
Preparing for answering the globalisation challenges?

28. Table of Contents Global trends in the field of market infrastructure
Payment and settlement systems – changing global dynamics
Global trends in the field of market infrastructure 3
Use of global standard for local systems 2
European context and challenges 1

29. Global trends in the field of market infrastructure
New challenges
New challenges
Managing globalising markets
High volume of information from multiple sources
Reporting for multiple purposes to multiple parties
Only one source of information the transactions
and assets of financial institutions

30. ISO 20022 amongst other standards can help
Global trends in the field of market infrastructure
New challenges
Reusing existing investments
Optimising existing information and systems
Increasing transparency for internal reporting
Increasing meaningful access to information for competent authorities
ISO amongst other standards can help

31. Global trends in the field of market infrastructure
Capitalising on investments made
ISO for payments
Clearing & settlement
Interbank transfers via correspondent banking or ACHs, high value payments, low value bulk payments, RTGS, etc.
Payment initiation
Communications between the ordering customer and its bank, etc.
Cash Management between various actors:
Account opening, standing orders, transaction and account information, advices & statements from …
...the account servicing institutions to account owners, including reporting from the financial institution…
…to the ordering & beneficiary customers, reconciliation, exceptions & investigations handling.

32. Global trends in the field of market infrastructure
Capitalising on investments made
ISO for securities
Clearing & settlement
Trade Initiation, pre-trade
Trade, post-trade
Securities Issuance
Collateral management
Custody
Account opening, standing orders, transaction and account information, advices & statements, queries & investigations
Collateral, repos, securities lending & borrowing
Income, corporate actions, market data, proxy voting

33. Global trends in the field of market infrastructure
Capitalising on investments made
ISO for forex
Trade:
order, execution, allocation, affirmation, etc.
Post-trade:
confirmation, matching, assignment, novation, etc.
Pre-trade:
IOI, quotes, etc.
Clearing and Settlement, including netting and related reporting
Notification of trades to third parties
Trigger events, option exercises

34. Global trends in the field of market infrastructure
Capitalising on investments made
ISO for trade services
Associations providing rules and master agreements (eg IFSA, ICC)
Private and corporate customers (treasurers)
Financial Institutions
Risk management entities
Trade facilitators: chambers of commerce, insurance co, freight forwarders, carriers, customs, factoring co
Application providers

35. Global trends in the field of market infrastructure
Capitalising on investments made
ISO for card and retail payments
Transactions between merchants and acquirers, and cardholders and issuers that support authorization, clearing, reversal, chargeback, dispute processing, etc.
Transactions between acquirers and card issuers
ATM processes such as authorization, processing, ATM management and inventory
POI messages for payments, administrative and device related services
Similar messages transacted on internet or from mobiles or other personal devices

36. ISO is providing technical committee and working groups
Global trends in the field of market infrastructure
Other standards
Other global initiatives are popping up
LEI - an ambitious project coming to reality
ISIN already a reality in most markets
… mapping all needs ?
ISO is providing technical committee and working groups

37. Thank you for your attention
@T2SECB

38. More information on T2S www.t2s.eu
T2S on the web:
Publication of all relevant information and key documents
Access to documents of all T2S working groups
“Spotlight” on latest information on the project
Information on project plan, governance, pricing, harmonisation
Ad hoc sections dedicated to all the T2S community (CSDs, banks, NCBs, others)
Publication of newsletter “T2S OnLine”