Target2-Securities: So Far, So Good as First Systems Go Live

As with the launch of any lengthy new project, the time of reckoning for T2S eventually and finally arrived on Monday 22 June as the first wave of migrations to the platform went underway. After nine long years of work, T2S welcomed its first participants with a relatively painless take-off.

T2S is a project of such magnitude that technical problems could be viewed as part and parcel of the deal.

Smooth Ride

The lack of severe complications must have come, in part, on the efforts and relative small size of the four markets — Romania (Depozitarul Central), Malta (Malta Stock Exchange), Switzerland (SIX SIS) and Greece (BoGS) — that composed the first migration wave.

"It was a very smooth process," Mehdi Manaa, T2S programme manager at the ECB, tells Sell-Side Technology. "We are delivering the full scope of functionality without restrictions, with few residual defects as usual when we launch these types of systems, but for anything significant we have workarounds in place that are fully tested and operational."

The fact that Bank of Greece is compatible with the need they have today to be well equipped to manage their current situation," he explains. "The set of tools that are offered to them by T2S allow them to adapt the behavior of their systems to their needs.

Manaa confirmed there were currently around "a few thousand settlement transactions per day" with the total set to rise exponentially once more participants are connected.

However, at such an early stage in T2S' lifespan, functionality takes precedence and Manaa stressed it would be redundant to attempt to set benchmarks in terms of settlement volumes.

Late Arrival

Originally there were to be five participants joining the platform in the first wave, with the Italian market (Monte Titoli), arguably the "heavy hitter" of the group, now due to join by the end of August.

"What has happened on the Italian market side is that they were not fully comfortable with migrating to T2S on time due to the pressure that the short testing phase put on them," says Manaa.

It's important to remember, he adds, that T2S is a tool rather than an objective. Participants that are not fully confident may require extra time to test this tool before feeling confident enough to join, which according to Manaa is a key element to the success of the platform.

"Tasking this adaption is something that is very demanding and in this process we need all actors to feel confident and that we assure them of their readiness and willingness to move to the next step," he explains.

Test, Test

Not only was the extensive testing phase for T2S an opportunity for participants to raise any points of concern, it was also a chance to review the functionality of the platform.

Manaa identified two "very minor" incidents with the platform following the go-live date "without any disturbance for the business perspective" and he's confident that any problems that do arise in the future will not have a serious impact of the platform's performance.

"We have discovered some defects but we did not discover any show-stopper that we were not able to resolve," he says. "All important defects mentioned by the different markets have been resolved or we have workarounds in place. Again, we've ensured that in any case the full scope of functionality will be available."

Grexit

The current instability of the Greek market and its tenuous position within the Eurozone is a major concern across the capital markets, with no clear outcome forthcoming.

Manaa sees BoG's participation within the first migration wave as a positive influence, with T2S acting as a "robust and functional market infrastructure" for the Greek markets to rely on.

"The fact that Bank of Greece is already on the platform is compatible with the need they have today to be well equipped to manage their current situation," he explains. "The set of tools that are offered to them by T2S allow them to adapt the behavior of their systems to their needs."

Round Two

The second migration wave of T2S is scheduled for March 2016 and Manaa explained that each wave would pose its own distinct challenges.

"The second wave will bring much more volume than the first," he said. "It will also bring the international cross-border links between different Central Securities Depositories (CSDs), so it will certainly enter a new phase of the T2S life."

These issues, along with anything else the European markets may throw up before March 2016, will certainly provide a much stiffer test of the T2S platform functionality, but for now T2S looks to have made a smooth start.

The Bottom Line

• Following an extensive nine years of planning and testing, Target2-Securities successfully launched on Monday 22 June as scheduled, with the Italian market due to join in August.

• The platform is delivering full functionality to the four markets that have already migrated, however with a currently low volume of transactions the platform will face more rigorous trials once larger players migrate.

• With a further 19 markets planned to join the platform by February 2017, the ECB will have further scope to develop the T2S' functionality as the volume of settlements carried out on the platform increases.