If there's one thing to take from Europe's various capital market initiatives over 2015 – most notably, the Capital Markets Union – it's that the continent's financial infrastructure needs work. Europe's new single securities settlement platform, Target2-Securities (T2S), has been hailed as one of many solutions to that problem. A €1 billion ($1.5 billion) project run by the European Central Bank, T2S provides the post-trade IT system that underpins Europe's single capital market. And while its potential to boost efficiency and reduce costs shouldn't be underestimated, the project's first few months have been marred by technical issues and severe delays. "There's definitely questions over the complexity of the system," says Godfried de Vidts, chairman of the European Repo Council. "The amount of delays and teething problems so far is not surprising, and I think we can expect a lot more of that in the future."
Bringing central securities depositories (CSD) on board has been problematic. Italy's Monte Titoli joined two months later than intended, and Euroclear, the Belgium, France and Netherlands-based CSD, has made clear it won't make the initial deadline of March 2016.
Euroclear is one of the world's largest CSDs, so its involvement is crucial to the project's future. Its delay could potentially have a domino effect on others' launch dates, as Belgium's Interbolsa and NBB-SSS were due to join at the same time. At the time of going to press, Euroclear had not confirmed an official join date, but with Deutsche Börse-owned Clearstream scheduled to come on board in September 2016, the prospect of Europe's two largest depositories joining simultaneously – raising potentially huge operational risks – is a concern.
With time, there is plenty T2S will be able to do. Looking beyond 2016, both de Vidts and David Hiscock, a senior director at the International Capital Market Association, believe T2S has real potential to boost efficiency and bring greater functionality to the repo market. At the moment, however, while it is able to settle the on or off leg of a repo, it's not capable of supporting the full lifecycle. Instead, these appear as isolated transactions.
"There's clearly scope to go beyond where we are today, and it would be a missed opportunity not to," says Hiscock. "We really need to start thinking about it now, or it'll be 2020 or even later before these things show up." But launching the initial settlement platform has already taken nine years. It could be as long as another nine before the true benefits of T2S are recognised.