The European Post-Trade Ecosystem Under T2S

Dealing with Complexity
by Axel Pierron, March 6, 2013
Industry Trends


The European post-trade infrastructure is going through a sea change with the implementation of the Target 2 Securities (T2S) platform by the European Central Bank and the proposed CSD regulation (CSDR) by the European Commission. This evolution will push market participants to reconsider their post-trade arrangements and review their current back office system capabilities.

Financial intermediaries (custodians, agent banks, and broker-dealers) have numerous options to consider to leverage T2S. However, the 23 central securities depositories (CSDs) that have decided to join T2S, especially the smaller ones, are in a more challenging situation, according to the report The European Post-Trade Ecosystem Under T2S. The combination of T2S and CSDR puts at risk their various sources of revenues (settlement, asset servicing, issuer relation, etc.) while requiring significant investment to adapt their current back office system to the future environment.

One of the key pain points in the T2S adaption scenario is the fragmented nature of the European post-trade ecosystem and the coexistence of different market practices and messaging formats. Financial intermediaries need to devise an efficient and cost-effective adaptation program to realize the benefits of T2S and also dovetail the organization’s long-term strategy. Depending on the approach followed, the budget required to adapt toT2S could range from €7 million to close to €30 million for the most ambitious approach.

“There are some major discrepancies among market participants in terms of their readiness for T2S implementation,” says Axel Pierron, Senior Vice President of Celent’s Securities & Investments Practice and author of the report. “Not surprisingly, on an industry level, custodians and CSDs are among the post-trade providers that are the most advanced in their preparation.”

“The combination of T2S and CSDR puts CSDs in a very difficult situation: they need to invest to adapt to the future environment and outsource their settlement activity to the T2S platform; meanwhile, their other sources of revenue are at risk with the increased competition that will be fostered by the CSDR,” he adds.

To provide a clear understanding of the challenges ahead of the European post-trade market, SWIFT has agreed to sponsor Celent’s research in this space, while leaving full editorial control of the report to Celent.

This report looks at the impact of the Target 2 Securities platform and how it will foster competition in the post-trade arena. The report also describes how CSDs will evolve along the value chain and compete more directly with subcustodians in asset servicing.

This 34-page report contains 10 figures and three tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary




Harmonization with the European Post-Trade Ecosystem



Target 2 Securities



The Proposed CSD Regulation (CSDR)



A Challenging Environment for CSDs



Barriers to Harmonization in the European Post-Trade Infrastructure


Impact on Back Offices of Market Participants



Market Participants That Will Change Their Post-Trade Infrastructure to Leverage T2S



Dealing with Network Complexity Under T2S



Strategy to Back Office Adaptation



Spending to Adapt to T2S


New Sources of Revenue



Collateral Management



Securities Lending



Repo Market







Cost Components of Each Post-Trade Arrangement Option


Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


Sign in to download reports and access personalized information