The European Central Bank has published its latest pricing proposal for the Target 2 Securities initiative, which sets a tariff for a delivery versus payment (DvP) instruction at 15 cents.
The latest progress report on the project, titled T2S: Halfway to Delivery, also confirms that the implementation date has been put back by a year to September 2014.
The initiative, which is designed to create a single pan-European settlement system for European securities, has been dogged by controversy since it was first mooted back in 2006.
Speaking to Finextra, Jean-Michel Godeffroy, chairman of the T2S programme board, says the reasons for publishing the new report are twofold. "First of all we wanted to summarise the project for those market participants that do not fully understand it, such as the small brokers or savings banks that do not operate in the core market. Secondly, we wanted to give more clarity on the pricing model."
The 15 cent price, which is subject to approval from the ECB's governing board, is based on the ECB's prediction of future settlement volumes and, if approved, will be set for the first four years once T2S goes live in 2014. The pricing plan assumes that non-Euro currencies such as the Swiss Franc and Sterling add at least 20% to the euro settlement volume, that securities settlement volume in general does not fall below 10% of current volumes and that tax authorities confirm that the Eurosystem will not be charged VAT for T2S services.
Godeffroy insists that the 15 cent figure is conservative and he envisages greater involvement from non-Euro currencies which would hopefully enable the price to go as low as 10 cent. Nonetheless he acknowledges that calculating future settlement volumes in the unpredictable post-crisis market is a challenging task.
The success of the T2S project also depends on the involvement of both national and international central securities depositories (CSDs) which currently provide settlement services for securities as well as central banks outside of the Eurozone that need to authorise the setlement of trades on T2S in their national currencies. Negotiations are currently underway with the central banks of the UK, Switzerland, Norway, Denmark, Sweden and others.
The final cost of T2S transactions will also include the charges that the CSDs add on for the services they retain once TS goes live, such as providing Swift connectivity, and the costs that will be incurred from adapting to the system changes of the T2S platform.
The costs of adaptation have been one of the issues hampering similar EU initiatives such as the Markets in Financial Instruments directive (MiFID) where brokers fees have not been reduced despite the reduction in exchange fees, thus depriving end investors of the benefits of new competition.
The debates between the ECB, the CSDs and the agent banks over the practical and political issues of T2S have been lively ever since the project was first announced in 2006 and have come to the fore at past Sibos events. And with further panel discussions set for this week, this year's event should be no different.
Godeffroy, however, is keen to stress that T2S is essentially a technical initiative and not a political issue. "Non-Euro central banks can keep the policies they want to keep and we will not interfere with the way they run their currency. And the CSDs can run their accounts on T2S and as long as they adhere to the platform's rules, they can run their accounts under their own control."