T2S and CSD Regulation to Obviate National Depositories

At a Sibos 2013 panel on T2S, speakers debated the simultaneous effects of the two moves, both of which have major ramifications for settlement processes in the Eurozone.

"We're going to see a consolidation, but you're also going to see a new breed of CSDs," said Nadine Chakar, EVP of global collateral services at BNY Mellon. "Local CSDs are going to have some problems with the pressure of facing CSDR and T2S at the same time. It's going to be a game of scale, and will need a change in their business models."

Slow Declines
The future roles of CSDs in the reformed market landscape, with their settlement functions essentially outsourced to T2S, have had a large question mark hovering over them for some time now. While the accepted wisdom is that the larger organizations can turn to areas such as asset servicing and custody to maintain their revenue, regional CSDs without the size and the reach to do so effectively may find their entire operating model cut out from beneath them.

"I have a very simple way to answer this question. With T2S, and the CSD Regulation, five years from now, you will no longer have any national CSDs," said Jean-Michel Godeffroy, director general and chairman of the T2S board at the European Central Bank (ECB). "You will have European CSDs. Those who do not turn European will have difficulty finding their way. That does not necessarily mean that only the big ones will survive, because T2S will, at some levels, help the smaller ones to develop an offer which may attract business. Particularly because we're going to price transactions at the same price, everywhere."

Harmonization
Members of the audience questioned Godeffroy's assertions, saying that Europe still had wrinkles to iron out in its economic structure before the local CSDs would be completely annihilated without adopting a pan-European outlook. A lack of tax harmonization between regions, they pointed out, still make such things difficult. Godeffroy, however, likened the move to wider reform in the Eurozone, such as recent efforts towards banking union. It is, essentially, an aspect of general European integration, positioning T2S as a component of general political drives as well as financial ones.

With T2S, and the CSD Regulation, five years from now, you will no longer have any national CSDs. You will have European CSDs. - Jean-Michel Godeffroy, ECB

Most seem to accept that there will be attrition and conglomeration in the CSD landscape, although others, like Chakar, believe that the new breeds will succeed with enough scale and resources. Others say that even if that is to be the future, it will still take time to get to that stage, and will not happen overnight with the first wave of migration to T2S in 2015.

"The whole tone of this debate has shifted," said Mark Gem, member of the international executive board at Clearstream, an international CSD. "Long term, will it lead to people leaving, selling, or consolidating? Probably. But we have to go through halftime first."

T2S is envisaged as a pan-European platform, operated under the aegis of the ECB, which will harmonize delivery-versus-payment settlement in central bank money, for most European securities. Moderated by Aité Group senior analyst Virginie O'Shea, the panel also included Alan Cameron, head of global strategic UK broker-dealer and bank relationship management teams at BNP Paribas Securities Services.