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Shift to T+2
14 August 2014
How are the industry and clients preparing for Target2-Securities and the shift to T+2
- Alan Cameron, head of relationship management -
international banks and brokers, BNP Paribas Securities
- Ulf Noren, specialist and global head of
sub-custody, transaction banking, SEB
- Jason Nabi, head of global broker-dealer
services, Societe Generale Securities Services
- Tim Harris, associate director, alternatives and
derivatives, Hermes Fund Managers
- Hugo Cox, chairman
Chair: What is your strategy for T2-S?
Cameron: We are building a single technical
platform across all T2-S locations, which will have a direct
connection into T2-S. So we will be a directly connected party
(DCP). This will allow us to centralise settlement in Lisbon
and leverage the harmonisation that we get out of it to drive
down costs. Along with centralising settlement, we will
centralise cash and liquidity management.
What we will not centralise is asset servicing. We remain
committed to having accounts in each individual issuer CSD and
keeping asset servicing local because it is still dominated by
the specifics of local markets. The branch network, as people
know it, will focus on serving local clients in individual
markets. Then the centre in Lisbon focuses on settlements and
economies of scale.
Nabi: We will also be a DCP, with the two main
entry points of Paris and Milan. We will also take the approach
of having local asset servicing, with local custody experts
where we have a local presence. We are also pooling cash and
collateral processes, as part of the setup. We are focused on
If clients want a global or regional set-up, we can support
that. If they want a local, or multi-local, custody set-up, we
can do that. We are looking to develop a more pure custody
arrangement for those clients that just want single market
operations. But it is fairly similar to what we are seeing
across the industry.
Noren: We have every intention of remaining
the leading provider, and the gateway into, those seven markets
that might be considered to be the Nordic region. But we have
to look at the macro situation. It is a fragmented region for
T2-S, in terms of the time schedule, the currencies and the
various nations using it. So we have taken the decision to be
an indirectly connected party (ICP).
We will mirror the functionality of the respective CSD but we
will provide very strong access provision to both cross-border
and domestic clients in those seven markets, in very small
doses and in various levels of granularity. The reason for that
is that we actually have no market in the first or second wave
of T2-S implementations.
Chair: How are clients viewing the transition to
Cameron: The vast majority of clients just
want stay alive through the whole thing. If they can work with
the custodians to use T2-S to drive down costs then they are
probably going to be happy enough. A very small handful of
really top-tier clients are looking at changing how they will
operate once T2-S comes in. It is very hard to make final
decisions now because we do not know the prices the CSDs will
In fairness to the CSDs, even if they did try to put their
prices up now, they do not really know what their business is
going to look like in three years’ time. So, even
the big clients, which know their direction of travel for T2-S,
are finding it hard to finalise a decision.
Nabi: Ten years ago I think there were about
50 securities services or custodian type firms operating. The
number is, realistically, half that today and it is probably
going to be half that again in the next 10 years. As a
consequence, I think what we have already seen in clearing we
will see in settlement, with interoperability across the CCPs
and those firms providing clearing services, as general
clearing members (GCMs), doing so globally. If you do not need
four to five clearers, you can go to one.
The same will happen as a consequence of T2-S. I think this
regional approach in Europe will further drive simplification
and standardisation across network management. The leaders will
be larger sell-side firms appointing regional providers for
settlement rather than doing it themselves. The trend is still
to outsource – that will not change. I think they will
just have fewer agents – doing more and doing it
probably for less, which is a challenge for us.
Then there is a very interesting aspect if we look further
downstream – what will happen as other regions take a
similar T2-S type model, perhaps in Asia or central America. In
general, though, the challenge for us service providers is just
to make sure we have the right cost model and the right service
model. It ought to be a net benefit and, frankly, it will be
survival of the fittest.
Chair: How important is the impending shift to
Cameron: There are a lot of things still
undecided despite the fact that it is happening in October. We
would like discipline fines to be lighter for the month of
October. In general, the best solution will come if the whole
industry takes the stance that everything is T+2. Things also
need to work better between the sell and buy sides because
funds still have subscription and redemption periods that are
at odds with T+2.
Noren: We started on T+2 immediately after it
was described as a requirement under CSDR. The Nordic markets
came together and have been working to it for a year and half.
From a Nordic perspective, we feel fairly confident that we
have covered most of the pitfalls now, although entities that
do inbound business might have a completely different opinion.
It is a good reason to be observant on how liquidity will be
affected by T+2 because it could get worse, paradoxically.
Otherwise, I have few worries.
Harris: T+2 is not going to be a life-changing
thing for us but the substitution question is focusing our
minds. We will look to T+2 as a best practice for OTCs and
other instruments going forward, but it is where we have
investment into funds day one and clearing day two that will be
challenging. Currently there would be a mismatch in terms of
when funds are available if we want to be 100% invested at all
times. So we are working through that at the moment.