The knock-on effect of Euroclear’s T2S delay

When Euroclear announced last month that it’s ESES CSD’s, those under its umbrella in the Netherlands, Belgium and, most importantly, France, would not be able to migrate to the European Central Bank’s single settlement platform for Europe, T2S on time to join Wave 2 in March 2016, it raised a number of questions and came as a big setback for the flagship programme.

Speaking at the Global Custody Forum in London this week, Dirk Bullmann, directorate general payment systems and market infrastructure at the ECB said, “The idea was for there to be one big market in each Wave of migration (Italy, France, Germany then Spain). Euroclear have asked for a six month delay, so could go live in September 2016. If a CSD delays, as Euroclear has here, they move to a contingency Wave. Euroclear will either migrate in September 2016 or September 2017.”

The T2S steering group is due to meet on 10 December and the subject of when Euroclear will migrate to the platform will be top of its agenda. A decision on exactly when the three CSDs within the Euroclear group affected here will migrate to T2S will be made clear in January 2016.

If it is moved to September 2016, this will have a big knock-on effect upon Clearstream and Germany. “We are ready to migrate as planned!” commented Guido Wille, executive vice president, head of market development at Cleartream, on the same panel as Bullmann at the Global Custody Forum. “We are happy to migrate as we are. We wish to migrate separately from Euroclear, though, as it is too risky to migrate at the same time as them. It also renders the ‘Waves’ concept redundant. If Euroclear migrates in our Wave we would have to postpone as we would be pushed out. We can do this, but it is not ideal.

“The other scenario if that Euroclear migrates very late. This could create more cost for everyone, though. We just have to react to what happens with Euroclear. There is more to discuss in early 2016 and we should have a good idea of what can be done soon.”

It is apparent that one of the big markets set to migrate to T2S – France, Germany or Spain – will have to migrate in September 2017 if two major markets are not to migrate in the same Wave. France was due to migrate in March 2016, Germany in September 2016 and Spain, finally, in March 2017.

Given that Clearstream has already begun testing with T2S and Wille says that they are ready to move ahead of schedule, it would be a significant blow to them if Euroclear is designated a migration slot in September 2016. Wille added that all of the testing conducted by Clearstream has been done with the belief and understanding that Euroclear would already be migrated to the platform.

The key impact here is volumes. It has been estimated that between them, Italy, France, Germany and Spain will make up around 95 per cent of the volumes on T2S. Italy has already migrated with Monte Titoli joining the platform in August 2015, so Clearstream has been testing in an environment designed with Italy and France already on T2S. This, too, will have an impact on the testing procedures of Iberclear in Spain.

Alan Cameron, head of relationship management at BNP Paribas, commented on the panel that, “Harmonisation hasn’t happened yet; it comes progressively with each Wave. This is the painful side of the delays, since the harmonisation benefits take longer to be realised. These benefits will be great and help people with the simplification of processes in the post-trade space, but cannot be fully realised until each CSD is on the platform.”

The ramifications of Euroclear’s delay are far reaching. Another topic discussed by the panel was the notion of future joiners to the T2S platform, with the UK, a notable absentee from the project as a whole, mentioned. “If we get back to the idea of cost reductions (one of the original and central tenets of T2S), we have to get the volumes into it,” said Cameron. “That means big markets. I would not give up on the UK. They rejected it a long time ago; the feedback now would be far more positive.”

Whilst the feedback may be more positive, the continued delays to the full implementation of T2S remain a thorn in its side and doubtless a deterrent to prospective and potential new markets.