Central securities depositories (CSDs) from 21 European countries will indicate their commitment to the European Central Bank’s TARGET2-Securities (T2S) centralised settlement infrastructure next week, according to Gertrude Tumpel-Gugerell, a member of the bank’s executive board.
Tumpel-Gugerell said the signing of a memorandum of understanding (MoU) by the CSDs would keep T2S “on track” for its scheduled delivery date of 2013. She added that the European Central Bank (ECB) had responded to the Bank of England’s concerns over the proposed governance structure for T2S and expressed confidence that differences could be resolved.
T2S is designed to support a single integrated securities market in Europe by establishing a central utility for the settlement of cross-border securities transactions. National CSDs will connect to T2S for cross-border settlement but will continue to operate related services.
CSDs operating in all euro area countries, except Slovenia, will sign the MoU, plus CSDs from six non-euro European states. The MoU signed by CSDs from Denmark, Sweden and Lithuania will cover transactions in both euro and local currency, while the UK, Estonian and Romanian CSDs will only commit to T2S for euro transactions.
The 13-page MoU states its purpose as the formalisation of “certain mutual contributions of the Eurosystem and the CSDs to the T2S project and to define certain parameters concerning the scope and negotiations of the future contractual arrangement between the Eurosystem and individual CSDs in relation to the T2S services”.
However the document does not create “an obligation to enter into the agreement”.
Last month, Bank of England (BoE) executive director and chief cashier Andrew Bailey wrote to Tumpel-Gugerell indicating that the role of the ECB’s governing council in the proposed governance structure for the T2S could prevent the UK from committing sterling transactions to the facility. “While there may be a case for a more integrated approach to securities settlement across Europe (going beyond euro-denominated securities), a number of very important issues require further careful consideration,” wrote Bailey.
But in a letter sent to the BoE last week, Tumpel-Gugerell said the Eurosystem would address the bank’s concerns and expressed confidence that an “adequate solution” could be found. Tumpel-Gugerell would not be drawn further on the nature of a solution, but said the ECB was at the “start of negotiations” with Europe’s national central banks.
According to Tumpel-Gugerell, the next steps for the T2S project would include agreement on technical specifications. Work on building the technical infrastructure of T2S is scheduled to start in the first half of next year. Tumpel-Gugerell said binding documents would be signed in early 2010, once more clarity had been provided on costs and fee structures. However, she ruled out an extension of the scope of the project to encompass derivatives, despite the European Commission’s proposals last week for a more robust regulatory framework for these instruments.