Brussels, 22/02/2007 (Agence Europe) - At the Ecofin Council on Tuesday 27 February, EU Finance Ministers will recommend that the European Central Bank (ECB) exercises the greatest caution in its feasibility study of “Target2-Securities” (T2S) project, and takes full account of the consultation exercise with market players which is currently ongoing with (see EUROPE 9317). This project, with will put in place a common settlement engine capable of settling securities in central bank money in euro, aims to remove the notion of cross-border transaction in settlement. The ECB could deliver its opinion on how to proceed with T2S in March.
In its draft conclusions, the Ecofin Council calls on the ECB to “proceed step by step examine carefully the results of the consultation and take in particular the following aspects into account”: the economic feasibility of the project should be clearly proved, its costs should be “lower than the lowest cost in the EU”; “participation in T2S should not be compulsory and access to central bank money should not be restricted for non-participants, who should be able to continue to perform settlement in central bank money”; the operation of the project “should comply with EU competition policy”.
Ministers stress, too, the importance of several principles which the ECB initiative should respect: “T2S should be open to non-euro area Central Securities Depositories (CSD) and currencies”; “the existing securities settlement systems as they are currently operated, either interfaced or integrated, should not be put into question during the migration phase until T2S is implemented”; on governance, solutions involving all the market players concerned should be envisaged, in order to be able to deal particularly with potential “conflicts of interest”; “the supervisory arrangements applying to CSD should remain safe and efficient”; and the “legal implications of reconciling T2S with existing national jurisdictions should be clearly analysed”.
An ECB feasibility study published in mid-January, concluded that the T2S project would permit savings of up to 920% in the settlement costs on capital goods transactions in the euro zone. To be operational from 2013, T2S will cost nearly €90 million to be spread over all the transactions it would manage (€161 billion worth of transactions were recorded in the euro zone in 2006). Economies of scale will allow a cost of a transaction at €0.28, a price lower than the cheapest applied by settlement bodies in the euro zone. The study estimates that the impact of T2S on market players, such as CSDs, and banks, will be beneficial.
All the market players do not have such a positive view of the ECB initiative. The European Central Securities Depositories Association (ECSDA) wrote to the ECB at the start of February to express its concern. It believes that “there is a lack of clarity around some key aspects of the proposal, its costs and benefits which need deeper consideration”. It would be “inappropriate at this early stage for the ECB to make a firm commitment to implement T2S”. The ECSDA speaks of the dangers of a “blurring of responsibilities” between the accepted role of the ECB as a public authority and its proposal to become a monopoly supplier of IT infrastructure for CSDs regarding their settlement services. Wishing to deepen consideration of “questions of governance and accountability”, it says it has nothing against the independence of the ECB in executing its monetary policy, but it deems this position to be “inappropriate for an IT provider” and would like to know if EU competition rules will apply to the settlement activities envisaged by T2S. Questionning the way in which the price of a transaction (€0.28) was arrived at, the ECSDA fears that “the fragmentation of functions between the CSD platforms and T2S introduces new areas of inefficiency, risk and cost which have not been fully explored”. (mb)