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Anticlimactic wave 2 threatens T2S cost recovery plans

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Tom Casteleyn (pictured), Head of Product Management for Custody, Cash and FX at BNY Mellon comments on how delays to the ECB’s T2S programme have derailed the project…

Last year’s delays to the ECB’s ambitious T2S programme have derailed the project’s execution timeline, with wave 2, scheduled to go live on 28 March, shaping up to be a minor event.

The real test of the future success of T2S will be when significant settlement volume goes live on the platform. The postponement of Euroclear’s domestic CSD migration, which comprises more than 25% of the business intended to be hosted by the T2S platform, has reduced the volume going live in wave 2 to just a few percentage points.

An anticlimactic wave 2 could cause market participants to question the short to medium term benefits associated with T2S, in which they have invested significant resources. The harmonisation benefits that the T2S project promotes will remain largely unobtainable for many companies as the CSDs joining the platform under waves 1 and 2 generate little or no cross- border settlement. While wave 2 represents an incremental step towards full harmonisation, there is still some way to go before companies can derive the benefits to compensate for upgrades they are making to their infrastructure.

The question of costs versus benefits bears importance not only for financial companies, but also the ECB, which is trying to recuperate the costs of the project through the operation of the platform.

For all industry participants that are adapting their systems to incorporate T2S, there will be a longer wait before the benefits emerge from this investment. They will have to adapt their conversion timelines and set new deadlines in response to changes to the wider market’s T2S timetable.

“In the long term, benefits of aligning to the new system remain significant and will outweigh the osts. Companies should continue with their T2S strategies but also be prepared to be flexible. Despite hiccups in the execution, T2S is a reality that the industry must adapt to and work with. It is here to stay

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