The Federation of European Securities Exchanges (FESE) has voiced concerns over the cost implications to its members of the European Central Bank's (ECB) plan to introduce an integrated securities settlement system in the euro zone and has called for more clarity and a clear business case for the project.
The ECB envisages that the Target2-securities (T2S) system will connect all clearing networks in the euro zone into a single platform, extending the payments system used for central bank operations to cover securities settlements. The ECB believes the implementation of an integrated securities settlement system in the euro zone could cut settlement costs by up to 90%.
The plans have come under fire from European Central Securities Depositories Association (ECSDA) as TS2 would supplant services currently provided by its members. But Europe's banks have come out in support of the scheme, although only on condition that they get more say in the design and implementation of the system and that banks have direct access to T2S.
Now in a paper sent to the ECB, the FESE has echoed earlier calls for the central bank to provide a clear business case for TS2 in order to assess the efficiency of the initiative.
The FESE argues that there has been no clarity on the cost implications of the Target2-securities (T2S) platform and the expenses its members may have to incur in order to maintain certain national features.
"Hence, it is extremely difficult to work out a meaningful costs/benefit analysis and decide on whether T2S will be beneficial or not," says the FESE's paper.
The group argues that T2S should not increase the costs of clearing and settlement to preserve the efficiency of the European securities market and that any expected synergies and potential operational cost reductions should be weighted against the necessary investment and implementation costs of the system for its members.
"Any changes triggered by the implementation of T2S that would lead to major adaptations of IT Systems (i.e. extension of trading hours, communication protocols with CSDs, deadline for DVP settlement and management of failed trades, etc.) should be considered carefully and in synchronisation with the operators of regulated markets," says the document.
The FESE also argues that the "exact functionalities" of TS2 have not been made "absolutely clear" and claims the project has changed in terms of scope and definition.
It says T2S was seen initially an "outsourcing" of the settlement function and it was assumed that a Central Securities Depository (CSD) would be the entities interfacing with T2S. But recent discussions following the Direct Connectivity working document of 12 September 2007 have made it clear that other market participants - such as banks - would have direct connectivity to T2S.
At Sibos this year the two leading CSDs in Europe, Euroclear and Clearstream, also asked the ECB for more clarity over the Target2 Securities (T2S) project.
At conference session devoted to T2S, the two CSDs also questioned the projected savings forecast by the ECB and raised concern over its experience in running a major technology platform and the proposed governance structure of the system.
Marc Bayles, the the T2S programme manager at the ECB will be speaking at Finextra's annual Finexpo
conference in January, when he is expected to provide market participants with an update on the project.
Read the FESE's document here:Download the document now 120 kb (PDF File)