TARGET2 for Securities [T2S] – the latest news

The ECB just released their latest Quarterly Update Magazine and, as we have a plenary meeting of the Clearing & Settlement Working Group next Tuesday, I thought you might be interested in an update on T2S from the ECB.

T2S Programme Plan

The T2S project is on
track and progressing according to the Programme Plan, which foresees a total
of 17 Synchronisation Points (SPs) until the go-live of the T2S platform and
the migration of all participating CSDs. For more details, click here. (Going Live 2015)

After the completion
of the first two SPs, the timing and scope of the deliverables for SP3 is
currently being assessed by the T2S Programme Office in cooperation with the CSDs.
As defined in Annex 9 to Schedule 2 of the Framework Agreement, SP3 “marks the
mutual assessment and confirmation that the T2S Programme Plan is
comprehensive, and adequately reflects any agreed additional specifications,
deliverables and/or CSD/CB planning elements (arising from their updated
feasibility assessments).”

The CSD Steering
Group, in its meeting on 11 and 12 November 2012, recommended that SP3 be
postponed until April/May 2013. This proposal takes into account the fact that
SP3 has no impact either on the subsequent SPs or on the T2S go-live date, and
that more details are needed than initially foreseen to complete all SP3
deliverables. It also takes into consideration the recent decision on the
migration waves (see below) and the ongoing discussions about change requests.
This proposal will be brought to the T2S Board for approval in December.

Migration waves

While the composition
of the first migration wave in June 2015 was not controversial, the debate
surrounding the composition of the other two waves has been less
straightforward. The final plan drawn up with the CSD Steering Group and
endorsed by the Governing Council of the ECB is presented in Marc
Bayle’s article later in this issue.

Change requests

In October the Change
Review Group (CRG) decided to proceed with only four of the 34 change requests
that resulted from the CSDs’ feasibility assessments, which were submitted at
the end of June 2012, as planned. The other change requests have either been
discarded or will be considered for implementation in later releases of T2S.
More detailed information is available on the CRG
webpage. The four change requests that are currently being assessed by the
4CB, and that will be discussed by the CRG at its December meeting, are:

• T2S_0348_SYS – allow instructions from
  CSDs with ISD on/after maturity date;
• T2S_0351_SYS – reporting of match
  reference and other transaction-related information by T2S;
• T2S_0356_SYS – pagination for messages
  exceeding the maximum volume of 32 MB;
• T2S_0364_SYS – limitation on the number of
  rules for the message subscription (e.g. Message Subscription and MSRTs).

The final decision of
the T2S Board is expected before the end of the year.

Finally, change
request 339 concerning the cost of two additional test environments to
facilitate the segregation of testing activities has been approved by the T2S
Board and the CSD Steering Group.

Technical
documentation

Since the summer,
updated versions of the following documents have been published in the “Key
documents” section of the T2S website:

• T2S User Detailed Functional
  Specifications (UDFS) version 1.2.1;
• T2S User Requirements Document (URD)
  version 5.2;
• Business Functionality for T2S Graphical
  User Interface version 1.8.

First published in
June 2012, these documents were reviewed by the CRG in July and subsequently
updated to incorporate a number of changes, mostly of an editorial nature.

Moreover, version 1.1
of the T2S Business Process Description (BPD) was published on the T2S website
on 16 November. The BPD describes and illustrates the business processes
involving CSDs, central banks and other technically directly connected parties
that interact with T2S. Version 1.1 mainly reflects the updates resulting from
the relevant change requests that have been approved since the publication of
BPD version 1.0 in November 2011.

Assessment of CSD
links

Links between CSDs are
regularly assessed against the Eurosystem user standards to determine whether
they are eligible for use in the collateralisation of Eurosystem credit
operations, given that only eligible links can be used for the mobilisation of
collateral for monetary policy purposes and for auto-collateralisation. Some
T2S markets have expressed their concern that the current procedure for the
assessment of eligible links is rather time-consuming, and are looking for
reassurance that newly established and existing links will be assessed in time
for the launch of T2S. The T2S Board, together with the T2S Programme Office,
have relayed this concern within the Eurosystem and the matter is currently
under consideration. Further information will be provided early next year.

Conditions for
directly connected participants (DCPs)

Several aspects of the
DCPs’ rights and obligations vis-à-vis the Eurosystem and other T2S actors have
already been covered in the Framework Agreement (available here),
but the T2S Advisory Group (AG) felt that further clarification was required,
in particular on the process of becoming a DCP and on possible legal and
operational synergies in DCP arrangements.

The T2S Programme
Office prepared a note on the “Conditions
for directly connected participants”, which was presented at the November
meeting of the AG. The AG agreed that users that intend to become DCPs in T2S
should notify the Eurosystem by October 2013. This notification will not be
binding. The framework for connecting DCPs to T2S will be discussed more
thoroughly at the next AG meeting in February 2013.

Harmonisation

Within the T2S
Programme, the T2S harmonisation work stream involves a number of groups,
namely the AG, the Harmonisation Steering Group (HSG), the Corporate Actions
Sub-group (CASG), and the Task Force on adaptation to cross-CSD settlement
(TFAX).

The HSG prepared
a draft of its third harmonisation progress report on issues that need to be
harmonised both to make T2S more efficient and to protect the “lean T2S”
concept. The draft report, considered by the AG in November, will be finalised
by February 2013 and published in March 2013. For the first time, the report
will include an assessment of the status of compliance for each harmonisation
activity, broken down by market. The document will also be discussed at a
conference on “Post-trade harmonisation and financial integration in Europe”,
organised jointly by the ECB and the European Commission (19 March 2013).

In addition, the TFAX
presented its final report to the AG at its November meeting (see Insight later
in this issue) and the HSG will now consider the recommendations contained in
the report.

Finally, the CASG
concluded its 2012 monitoring exercise, which aimed to provide an updated
overview of the gaps between the T2S corporate actions standards and the
readiness of CSDs and their markets to implement them. The results are
available on the CASG’s dedicatedwebpage.

Software
development and testing

The four central banks
developing and operating the T2S platform (Deutsche Bundesbank, Banco de
España, Banque de France and Banca d’Italia – 4CB) have already developed 87%
of the application software; it should be fully completed in the first quarter
of 2013. They have also progressed well with regard to their internal testing
of the software, with 48% of module testing completed as of September 2012.

Connectivity

Progress has also been
made on “connectivity” to T2S, i.e. the choice of networks through which market
participants and CSDs will be able to send instructions to, and receive
messages from, T2S. The licenses for the two value-added network service providers
were awarded to the successful bidders of a tender launched in 2011, and both
successfully completed their Proof of Concept in summer 2012. The Eurosystem
also completed its legal framework for the dedicated line service that will be
made available in parallel with the two value-added network solutions, if there
is demand from the market for this.