CSD

After nine years of planning, the first stage of a major new pan-European infrastructure project went live in June this year. Target2-Securities (T2S), whose logo is “settling without borders”, is an initiative of the Eurosystem (the European Central Bank and the central banks of the eurozone member states).

What is T2S and what do investors need to know about it?

What is T2S?

T2S is a project designed to rationalise and harmonise Europe’s system of securities settlement.

For most investors, a planned and executed trade is the end of the affair. Once a counterparty has been found and the terms of the deal agreed, we assume we’ve addressed the risks we were looking to offset in changing the composition of the portfolio.

But what if risks lurk in the post-trade processing of our transaction? How do we know that securities and cash have moved correctly, that the change of ownership is recorded accurately and, once the movement has taken place, that our ownership rights are secure?

In the world of capital markets, the public spotlight has predominantly fallen on pre-trade and trade analysis. The media focusses its attention on the price of shares, the movement of currencies, the possibility of changes to interest rates and the fundamentals of markets, as well as corporate news.

Steve Merry asks, "If Greece defaults – as many think it will – are your assets safe or will they slip through your grip faster than greased lightning?" Read on for a discussion of the risks of holding assets in Greece, Portugal, Ireland, Italy, and Spain, and what you can do to protect your fund from unnecessary additional risk.

Anyone buying a European mutual fund now receives enhanced protection from custodial risks. Do institutional investors need to ask for equal treatment?

Under Europe’s Alternative Investment Funds Directive (AIFMD), which came into force in 2013, fund depositaries have to indemnify investors in the region’s hedge funds against possible losses caused by fraud or negligence at the level of the custodian or sub-custodian.

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