Achieving TARGET2- Securities Readiness -Test Strategy Framework and Best Practices

Central securities depositories (CSDs), national central banks (NCBs), payment banks (PBs), and custodians across Europe are preparing for the first wave of migration to TARGET2–Securities (T2S) — a pan European securities settlement system. It is vital for these institutions to develop a robust and comprehensive T2S test strategy during the current user testing phase to ensure a successful changeover to the new securities settlement system.

In 2008, the European Central Bank (ECB) in Frankfurt first envisioned T2S — a pan European securities settlement system. While the Eurosystem Acceptance Testing (EAT) phase conducted by ECB in January 2014 offered some indication, the T2S community intently awaited the User Testing Phase in September 2014 for the first glimpses of the system in operation. In June 2015, this multi-year project implemented by ECB, CSDs, central banks, CSD participants and payment banks, with the expertise of post-trade specialists and industry practitioners, will lead to the first wave of migration to T2S.

The T2S system has been envisaged as a lean post-trade securities settlement solution although the affected market participants perceive it as a complex transformational initiative. This perception arises from the critical changes identified by most participants involving the redefinition of overall business strategy including T2S adaptation strategy, redesign of the operating model and potential revamp of the technology architecture and infrastructure. Institutions should therefore focus on the comprehensive validation of their T2S solution to benefit from a well-developed adaptation strategy and transition plan spanning one or more T2S migration waves.

While some institutions may have previously embarked on a multi-year strategic initiative, the uniqueness of T2S transformation program stems from the below factors.

  • Ensure a competitive advantage in the T2S world by offering new and flexible bouquet of services
  • Adhere to T2S synchronization points (SP) for testing and migration timelines and achieve reduced implementation time for the T2S adapted solution
  • Mitigate risks of program misalignment between T2S and other related ongoing initiatives across the enterprise

These factors add to the complexity of the T2S transformation program, necessitating that each institution adopt a test strategy that defines the broad contours of the T2S test program. The strategy should also be progressive and customized to suit its business needs.

This article discusses the key factors to consider in designing a robust and comprehensive T2S test strategy, and recommends some industry best practices for a multi-year market test approach.

In preparing for the migration to T2S, institutions have expended significant efforts over several years towards rationalizing their T2S connectivity models, planning for re-engineering of enterprise systems and processes, and ultimately training their end clients. To ensure effective utilization of their T2S-related investments, institutions should focus on defining a test strategy framework and approach that will meet the requirements of a multi-year program and address the concerns of internal and external stakeholders.

While the scope, timing, and duration of test phases may vary, leveraging industry best practices and techniques will assist institutions in overcoming potential challenges to a smooth and timely transition to T2S.

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