Driving Organization and Technology Transformation for T2S Adaptation

Forging integration and overcoming harmonization barriers across the European settlement landscape have been the driving forces behind the Target2 Securities (T2S) initiative. With the prospect of increasing competition post T2S, Central Securities Depositories (CSDs), custodians and Central Counterparties (CCPs) are being forced to revisit their business strategies, reshape business models and undergo enterprise-wide changes.

The T2S project has reached its half-way mark as measured by the milestones achieved – 87% of the platform development has been completed, 23 CSDs have signed the framework agreement and detailed requirements documents have been published. T2S will soon be a reality forcing CSDs, custodians, national central banks, CCPs and investment firms to radically change the way in which they operate in Europe.

The major CSDs have published their plans for adaptation and their strategy takes into consideration the following:

  • Consolidating client assets at a fewer number of CSDs / custodians
  • Attracting additional customers through value-added services such as collateral management, etc.
  • Offering attractive pricing, which means a considerable dent in margins

Some CSDs have mooted the idea of sharing the cost of investments with their clients. Custodians and CSDs are also viewing the T2S program as an opportunity to review their operations and revamp their IT infrastructure.

A recent poll conducted by industry association ISSA in June 2012 on regulatory compliance including T2S provides a different perspective of market infrastructure providers and intermediaries.

Some of the key opinions collated include the following:

  • There will be consolidation amongst the financial intermediaries and market infrastructure providers.
  • There will be a decrease in profitability at least to the extent of 10%.
  • The full costs cannot be passed on to the customers.
  • There is an inherent inability to predict if regulatory changes will drive more than 30% of IT budgets.
  • The adaptation to T2S involves implementing a transformation program along strategy, operations and technology dimensions.

In this white paper, we highlight TCS’ point of view on the challenges and complexity that institutions confront in their T2S transformation process and summarize the application of some industry proven best practices and frameworks to prepare institutions to embrace T2S.

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