T2S: Commercial advantages for Treasurers and Collateral Managers

Don't drown in the waves of T2S implementation. Surf them in pursuit of lasting competitive advantages, delivered through effective liquidity and collateral management.

T2S-related preparation and implementation is another example of costs incurred in reaction to yet more imposed regulatory change, right? Wrong. In fact, and given the right approach, preparing for and living with the changes brought by T2S can be much more than surviving just another wave in the tsunami of financial market regulations. Treasurers and Collateral Managers now have a chance to realize real competitive advantages, as long as they are prepared to look for the opportunities inside the changes.

The T2S 'official' back-story is familiar by now. Securities settlement, including cross-border, is set to become standardized, simpler and, above all, cheaper. The new platform, once it has fully rolled out, will remove barriers and re-draw the landscape. In the 'new normal' world post T2S implementation, flexibility and opportunity will be available to market participants to an extent greater than ever seen before.

Institutions that, right now, see only immediate cost and inconvenience, need to adopt a different perspective. Commoditization of issuance and settlement really is just the beginning. The true and sustainable commercial advantages lie in the key areas of – radically – improved liquidity and collateral management.

This is good news. Especially since the demands on collateral availability post-Lehman have skyrocketed, with the industry expected to make trillions of dollars of collateral available, in support of enhanced market stability. Correctly understood, and properly implemented, the new opportunities in the T2S landscape include a move towards collateral velocity. This is a vector approach that factors in key issues including where collateral is needed, how quickly and in what form it is available, and the optimum pathways for greatest efficiency, minimal risk and lowest achievable cost.

First understanding - and then reaping - the benefits of these very real opportunities do require institutions to keep four clear approaches front of mind:

1. Strategic determination to focus on T2S at a commercial level, rather than devising reactive/tactical responses only.
2. Thorough scrutiny of all the options before choosing their preferred route to TS2 implementation.
3. Effective mitigation of the challenges around T2S-associated market disruption.
4. Operational excellence achieved by unlocking the full potential of T2S in terms of optimized liquidity and collateral management.

The prize is much more than simply dealing with another regulatory-driven structural shift. There is an opportunity for nothing less than a transformation – of collateral management from cost to profit center.