ECB plans major market infrastructure overhaul

The ECB plans to create a T2S-style collateral management system to harmonise processes for EU central banks.

The European Central Bank (ECB) has announced two major changes to Europe’s market infrastructure including the introduction of a harmonised collateral operations platform.

The new Eurosystem collateral management system is another step in a bid to integrate financial markets in Europe, and will replace the existing systems used by the 19 central banks in the EU.

The launch of the Eurosystem collateral management system (ECMS) is planned for November 2022.

“The ECMS will allow changes to the existing collateral framework to be implemented in a harmonised way across the euro area,” the ECB stated.

Central banks have seen their role within the collateral management process increase as a result of certain asset purchasing programmes and other financing procedures to banks. Their main functions include determining collateral eligibility criteria, applying ‘haircuts’ on collateral and setting collateral valuation policies.

However, market research has highlighted central banks have been unable to establish any efficient links between pools of collateral in different jurisdictions. At present, few central banks have accounts with foreign central securities depositories (CSDs), which are responsible for holding onto the collateral posted.

The ECB is also planning to overhaul its pan-European payments and securities settlement platform.

The governing council for the ECB approved a move to consolidate its real-time gross settlement system TARGET2 with the securities settlement platform TARGET2 Securities (T2S) in order to provide enhanced liquidity management procedures.

The ECB expects to launch its consolidated payments and securities settlement platform in November 2021.

The central banks of Germany, Spain, France and Italy will act as service providers for both projects, the ECB added.