TS2 opens doors for large custodians

TS2 opens doors for large custodians

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Preparation for Target-2 Securities (TS2) will be a big topic at Sibos, according to BNP Paribas Securities Services’s Alan Cameron, head of relationship management international banks and brokers.

A small number of bulge bracket banks are preparing to dramatically change their operating model across Europe for the post-TS2 environment.

While smaller firms are taking a passive stance on the regime change, some large firms are using T2S as a catalyst for taking control of their settlements. BNP Paribas is working with a small number of firms to take on control of their asset servicing in a new so-called sponsored access operating model.

“We’ve been working with some clients to construct a model whereby they can be directly connected participants to T2S and we provide the asset servicing in all the markets across Europe,” said Cameron.

“It’s complicated as the asset servicer has to know exactly what’s happening on the trade flow in order to do the asset servicing correctly. The way we do that is by us routing the client’s instructions into the eurosystem and by doing so we can update our records and hence provide asset servicing for the local markets.”

To prepare to move to a sponsored access model firms might have to go through a number of stage changes, including consolidating services across Europe with one agent bank and moving from the traditional agent banking model to an account operating model at the CSD.

BNP Paribas’s preparation for TS2 has involved testing the new model and revising their own operations.

Working with all user groups and their advisory board the firm has confirmed that the new model works in the local market place. Cameron says it comes with improved settlement algorithms, auto collateralisation and it will cut down on the amount of collateral required.

“The other really good thing about the new system, once it’s in place, is we’ll only have to cope with one settlement system updating at any time. Previously, any time a CSD changed settlement platform it was difficult to adapt,” he said.

The firm’s new settlement hub in Lisbon harmonises settlements Europe. Local offices will remain focused on asset servicing. When TS2 come into force, the centralised hub will reduce the firms’ costs and give clients economic advantages.

“If you just sit still T2S won’t give you any cost savings, indeed it might increase your costs. You need to ask yourself not so much what T2S will do for you but what you can do for T2S,” said Cameron.
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