It has already been more than a year since Austria and the CEE markets went live. A comment from Günther Schnaitt, Head of GSS Austria.
As all waves of T2S’s go-live are now finished, it is time to examine where we stand in terms of volumes. It also makes sense to investigate the current issues and consider the future of T2S.
Let me start with some statistics delivered by the platform.
The average number of daily transactions started at around 500,000 in March 2017, dropping slightly during the summer months and increasing again in September and October, driven by wave 5 and Spain joining T2S. A further increase in February 2018 allowed T2S volumes to jump over 600,000 daily transactions on average. Not surprisingly, the average daily value of DVP transactions has developed more or less in the same way as the number of transactions.
Settlement efficiency, as it turned out, was hardly impacted by the increased number of transactions and we continue to see stable figures between 97.5% and 98%.
I consider the comparison in the number of transactions and the value of transactions between the night-time settlement cycle and real-time settlement highly interesting. The statistics show that around 60% of all transactions are settled during the night-time cycle, however, the value of these transactions is only 30% of the total settlement value. This indicates that large transactions tend to be settled during the day-time.
The same picture is confirmed by other statistics measuring the auto-collateralisation, which usually attributes 20% to 30% of the value to night-time settlement. Comparing settlement value and auto-collateralisation, we see around EUR 600 billion average daily volume, approximately 10% of which is auto-collateralisation.
Potential price adjustment
One topic heavily related to the volumes is pricing. By way of reminder, the Governing Council decided in November 2010 that the DVP fees in T2S would be set at EUR 0.15 per instruction. This price was guaranteed until the end of 2018, however, the T2S framework agreement foresees certain conditions which would allow an increase in this pricing. One of these is that non-EUR countries should add at least 20% to the EUR settlement volumes – and as only the Danish crown is used for settlement in T2S, this condition is clearly not met. The other condition for a price hike is that the volumes should not be more than 10% lower than projected; however, this gap is wider than anticipated. The commitment of the Governing Council to increase prices by maximum 10% was bound to those conditions and is therefore not met.
As T2S aims to attain full cost recovery, a discussion is currently starting on how to achieve this goal in the long run. The Eurosystem will enter discussions on this question in order to obtain broad market advice before changing any prices and looking for approval from the Governing Council in June. The new schedule is expected to enter into force in 2019.
Consolidating T2 and T2S
A new project on T2/T2S consolidation has been discussed for quite a while now and had already been approved by the ECB Governing Council in December 2017. The current focus is on drafting the User Detailed Functional Specifications, the first version of which is expected to be ready in November. The operational phase is scheduled for Q4 2021.
The impact of the project on the T2S functionalities seems to be marginal. It will hold only a few mandatory changes; however, the optional change requests would enable T2S to maximise synergies and gain additional benefits from the use of new options.
The main objectives of the project are:
- improved efficiency
- optimised liquidity management
- easier access to services via a harmonised interface
- enhancement of RTGS services
- aligned use of messaging standards
- optimised operational costs across all services
For the T2S stakeholders, ECB sees a long-term rationalisation of cash-securities operations and estimates approximately EUR 17 million of aggregate operational cost savings. There are no changes expected in the T2S governance structure. Regarding T2S functionalities, there will be no changes in settlement, information management and reporting; however, to a large extent, TARGET will apply some of the T2S concepts and architecture.
ECMS under way
The Eurosystem Collateral Management System (ECMS) will be a single system for managing eligible assets used as collateral for Eurosystem credit operations. This application will be used by market participants. It will have a similar role to existing national collateral management systems, as opposed to a platform to which market participants outsource their business.
AMI-SeCo supports this initiative with a sub-group called CMH-TF (Collateral Management Harmonisation Task Force), which aims at preparing harmonisation proposals. The main priorities are currently tripartisan collateral management and corporate actions. CMH-TF offers a unique opportunity to market stakeholders to contribute to the shaping of the future of harmonised collateral management processes.
Günter Schnaitt
Head of Global Securities Services Austria
guenter.schnaitt@unicreditgroup.at