The Target2Securities (T2S) initiative has the ability to revolutionise trade processing in Europe. The projected consolidation and centralisation of processes is designed to lower operational costs and improve efficiency for asset servicers and (eventually) investment managers.

In order to reap the maximum benefits of standardisation and ultimately reduce costs, Central Securities Depositories need to revamp their legacy systems to achieve compatibility with the initiative and ensure optimum efficiency.

While large asset servicers have the resources to react to the changes at the CSD and benefit from the resulting long-term operating cost reductions, smaller players may be unable to justify the initial outlay for investment. However the risk for these smaller asset servicers is that they could eventually be squeezed out of the market and this threat of being sidelined by the big players may provide sufficient incentive to implement consolidated systems which comply with T2S.

Investment managers’ needs must also be considered during the development phase to ensure tight integration between the trading systems and the middle and back office processes. Managers should make certain that these systems remain compatible and flexible to manage the increased diversity of  their investment portfolios.

The message to asset servicers is clear: T2S is coming and in order to reduce costs, improve efficiency and retain clients, it’s time to invest in fully automated, robust, flexible and integrated systems to meet the growing demands and competition in the market.