The European Central Bank has once again been forced to push back the deadline for implementation of Target2 Securities, the Eurosystem's ambitious but controversial project to harmonise Europe's securities settlement structure.
The announcement was made by Jean-Michel Goddefroy, director general and chairman of the T2S Programme Board, European Central Bank at the Swift Sibos conference in Toronto, who cited three reasons for the delay.
The first of these was the decision by the T2S board to accept changes to the IT system requested by the industry back in June. Additionally the period for testing has been expanded and the ECB has also introduced a buffer period for any unanticipated issues that arise. Goddefroy was unable to say exactly how long the delay would be saying only that it would be "several months but less than a year", which could push the project into 2015.
Goddefroy also stressed that the delay should not be seen as an insurmountable obstacle in the development of the T2S platform. "This does not affect the progress of T2S but it is important that we are realistic."
The T2S project has been beset by delays ever since it was first announced back in 2008. The original implementation date for the IT system was in 2013 but this was then pushed back to September 2014, as negotiations with central securities depositories (CSDs) and industry bodies dragged on over price and governance issues.
CSDs, along with custodians, are the ones facing the greatest impact from the introduction of T2S. Not only will they have to invest in adapting their infrastructure to cater for the new platform but they also face losing revenue from some of the services they currently offer which will become commoditised or removed altogether under the T2S.
At Sibos, Goddefroy received verbal support from fellow panellist Kevin Milne, director of post-trade at the London Stock Exchange, which also owns Italy-based CSD Monte Titoli.
Milne criticised the "growing sense of negativity" around the T2S project and cited the creation of the UK's settlement service Crest back in 1996 following the failed Taurus project that preceded it as an example of projects that have succeeded in spite of market scepticism.
"It is time for the industry to get behind T2S. It will be a bumpy ride but we have to get through it because the benefits will be huge," said Milne although he warned that not every participant would emerge successfully from the market changes.
"Investors will win, especially those that trade across Europe, and for intermediaries and infrastructures [like CSDs], it will be the ones that learn to compete that win. Intermediaries have competed for years but CSDs have not, so they will need to adopt agile governance structures so that they can make quick decisions and they will need a business model that enables them to recover their costs."
A move away from the reliance on transaction-based revenues and more focus on providing investor-based services have been cited as possible ways forward for CSDs, even though this may bring them into competition with custodians. Similarly it is possible that custodians could develop CSD-like services.
According to Milne, it is quite easy to see who will win: "If you go back three years and see who was looking at the potential cost of T2S and the changes that would need to be made, then it is pretty obvious that they will be the winners." When pressed he conceded that he was referring to the LSE-owned Monte Titoli.