On 7 July 2006, the European Central Bank announced that “the Eurosystem is evaluating opportunities to provide efficient settlement services for securities settlement in central bank money, leading to the processing of both securities and cash settlements on a single platform through common procedures”.

Why T2S?

Eight years after the introduction of the single currency, the Euro area still lacks an efficient, integrated securities infrastructure that would support the operations of a more efficient financial market. The ECB believes that the most efficient model for securities settlement is an ‘integrated’ model where cash and securities are settled on the same platform and such integrated settlement must occur on the books of a central bank. However, under the current arrangements, settlement and related processes - but not the cash side - take place on the same technical platform. Current systems, which use a dedicated pool of central bank money in an ‘interfaced’ model, are in a position to achieve the same level of efficiency as the ‘integrated’ model.

Secondly, the ECB emphasises the potential economies of scale in the connection between TARGET2 and T2S, in terms of liquidity management and operational consistency for users,  technical expertise, project development and management on the side of the developers. The ESCB has operated the TARGET payments system since the introduction of the Euro in 1999 and the successor system, TARGET2 (-Cash) is scheduled to go live in November 2007. T2S for securities is projected to make use of (or at least to closely link with) TARGET2 (-Cash) to settle the cash leg of securities transactions. It is important to note in this context that the three Central Banks that developed TARGET2 (the Bundesbank, Banque de France, and Banca d’Italia), “are ready to develop and operate the new service on the joint platform together with the Banco de España on behalf of the Eurosystem”. Finally, T2S is expected to contribute to removing at least some of the 15 Giovannini barriers, (barriers 1 (differences in information technology and interfaces) 2 (restriction on location of C&S), 3 (corporate actions) 4 (intra-day settlement) and 7 (settlement deadlines and operating hours/days) ).