T2S OnLineQUARTERLY REVIEWNo 12, Spring 2012

EDITORIAL

T2S PROJECT UPDATEINSIGHT

BAYLE’S VIEW

INTRODUCING THE FIRST CSDSOF THE T2S COMMUNITY

T2S IS OnLine FOR YOU

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Jean-Michel Godeffroy

EDITORIAL

On 8 May 2012, the idea of a “T2S Community” became a reality. On that day, a firstgroup of nine European CSDs signed the T2S Framework Agreement with theEurosystem. This group of early joiners included three of the largest CSDs in the euroarea: Clearstream Banking, Monte Titoli and Iberclear. It also comprised two CSDs ownedby central banks: the National Bank of Belgium-Securities Settlement System, and BOGS,the CSD for Greek government securities, as well as two depositories whose businessis based outside the euro area:VP Securities of Denmark and Depozitarul Central ofRomania. The recently established VP LUX and LuxCSD also signed the T2S FrameworkAgreement, thus bringing the Luxembourg market to T2S.

Together, the first nine CSDs in T2S currently process nearly two-thirds of the securitiestransactions settled in euro. In addition, just a few days before 8 May, the Euroclear Boarddecided to support T2S, thus opening the T2S door to the three ESES markets (Belgium,France, and the Netherlands) and to Euroclear-Finland. Many other CSDs in the EU arealso likely to join T2S over the next four weeks.This will make it possible to count thenumber of EU CSDs outside T2S, after June 2012, on one hand.

At the current juncture, when we are witnessing some difficulties in the euro area, thewords of Robert Schuman come to my mind: “Europe will not be made all at once, oraccording to a single plan. It will be built through concrete achievements which first create a defacto solidarity.” T2S is, and will be, one of those concrete achievements.

I am sure that the “European spirit” has helped the various parties involved in T2S toovercome problems which would have appeared insurmountable in other contexts.President Draghi echoed Robert Schuman when he stated on 8 May that, “[T2S] will bea major contribution to the strengthening of the Single Market”, and that “it is during times ofcrisis that we should not allow our commitment to the cause of further market integration tofade”.

During the signing event, Peter Praet, member of the Executive Board of the ECB,remarked that, “The spirit of the project will move on from negotiation to cooperation”. Centralbanks and CSDs will succeed or fail together. However, there is no reason to bepessimistic as long as everyone brings its best features: competition-driven dynamismfor the private sector and long-term perspectives for the public sector.

The support of political authorities was, and remains, crucial. In this context, I am happyto say that on 15 May, just a few days after the first signatures to the T2S FrameworkAgreement, the ECOFIN Council reiterated its clear support for T2S, qualifying it as “animportant contributor for the establishment of the Single Market for securities services”.

I would like to congratulate Danmarks Nationalbank for its decision to participate inT2S, although I regret that, so far, this is the only non-euro central bank that has decidedto join. However, according to the T2S rules, they may still join at any time and withoutcost. In fact, some central banks have already expressed their interest in joining T2S inthe years to come, as soon as their markets are ready.

In the same way as non-euro central banks, CSDs have the possibility of joining the T2SCommunity at a later stage. However, the T2S rules are very clear: the latecomers will

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have to pay an entry fee equal to one-fourth of their yearly T2S fees.This fee will bewaived only for those CSDs that sign before 30 June 2012. Late-coming CSDs will benefitfrom an existing network, created by their peers that decided to join early. The entryfee is fair from a competition perspective; therefore, it will have to be paid by those whojoin after 30 June. I think it is better to make this point clear again.

This issue of T2S OnLine will primarily be dedicated to the signing event on 8 May.However, many other things have happened in the T2S project since our winter issue:hence, as usual, Helmut Wacket will bring us up to date on the latest T2Sdevelopments in his T2S Project Update. The Insight, by T2S team member AnnaNuzzolo, will offer an overview of the highlights of the 8 May event in the form of a“reportage”, with particular focus on the messages conveyed by the Eurosystem andthe CSDs in their speeches, presentations and interviews. In Bayle’s View, Marc Bayleprovides an overview of the next key milestones of the T2S project. Finally, the nineCSDs that have already signed the Framework Agreement are the subjects of the lastarticle, entitled “Introducing the first CSDs of the T2S Community”.

I hope you will enjoy reading this “special” issue!

Jean-Michel GodeffroyChairman of the T2S Programme Board

EDITORIAL

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Framework AgreementOn 8 May 2012, the ECB hosted an event to mark the signing of the T2S FrameworkAgreement by the Eurosystem and a first group of nine CSDs, namely Bank of GreeceSecurities Settlement System, or BOGS (Greece), Clearstream Banking AG (Germany),Depozitarul Central S.A. (Romania), Iberclear (Spain), LuxCSD S.A. (Luxembourg), MonteTitoli S.p.A. (Italy), National Bank of Belgium Securities Settlement System, or NBB-SSS(Belgium),VP LUX S.á.r.l. (Luxembourg) and VP Securities A/S (Denmark).

The signing event was attended by senior representatives from across the financial sectorand the Eurosystem, among them ECB President Mario Draghi and Peter Praet, the ECBExecutive Board member responsible for the T2S Programme. More information is availableon the ECB website at http://www.ecb.europa.eu/events/conferences/html/t2s_signing.en.html.

The signing of the T2S Framework Agreement is an important milestone for the T2Sproject, concluding more than two years of negotiations on the contract and signallingthe positioning of CSDs as the preferred access point to T2S for their clients.

The nine signing CSDs account for around two-thirds of settlement volumes in the euroarea, and it is expected that by the end of June 2012 all euro area CSDs and several CSDsoutside the euro area will have signed the Framework Agreement.

Currency Participation AgreementIn February 2012 the Governing Council of the ECB submitted the CurrencyParticipation Agreement (CPA) to the Governors of the Danish, Swedish, Norwegian andIcelandic national central banks for signature. Danmarks Nationalbank announced at theend of April 2012 that it will join T2S with the Danish krone in 2018.The central banksof Sweden, Norway and Iceland have confirmed that they will not sign the CPA for themoment but will consider doing so at a later stage.

Network connectivityValue-added networks (VANs): Shortly after the signing of the Licence Agreementswith SWIFT and SIA/Colt, the Proof-of-Concept phase started. During this phase, thetwo providers must demonstrate that their connectivity solution is able to fulfil the T2Stechnical requirements. The Proof-of-Concept phase is progressing well and is expectedto be completed by the end of July 2012.

Dedicated Link service: T2S plans to offer the Dedicated Link service via a newgeneration of CoreNet, i.e. via CoreNet3.This will spare users of the Dedicated Linksolution the encumbrance of migrating from the existing CoreNet2 to CoreNet3, usinginstead the new generation from the start.Thus, on 3 March 2012 the ECB IT departmentlaunched the tender process for CoreNet3, and it is expected that its implementationwill be possible from mid-2013.

Software development and testingThe application development is progressing well. At the end of March 2012, 65% of theapplication software had already been developed. The test of the application is alsoprogressing smoothly. At the end of March 2012, 33% of the T2S application functionshad been tested at module level with successful results. Moreover, the Internal Acceptance

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Test phase, which consists in end-to-end tests performed by the 4CB, started as plannedat the beginning of April 2012.

Specification documentsAt its most recent meeting on 27 March, the T2S Advisory Group (AG) followed therecommendation of the Interim-Change Review Group (iCRG) and approved 24 changerequests (CRs) of the 28 stemming from the CSDs’ and NCBs’ feasibility studies. Itrejected one CR and took note that two CRs were withdrawn by the initiator. One CRis still pending and needs to be clarified by the iCRG and the iPMG (Interim-ProjectManagers Group). The implementation of the approved CRs will fill 4 weeks of the 3months buffer and will cost around EUR 1 million.

It is to be noted that after the publication of the User Detailed Functional Specificationsin October 2011, more than 1200 requests for clarification/change were received.Thevast majority of requests resulted in clarifications and only a very small number ofenquiries that could potentially result in additional change requests are currently beinganalysed.

Cross-CSD settlementThe Task Force on adaptation to cross-CSD settlement in T2S launched amini-consultation at the end of February addressing (i) registration processing, (ii) taxprocessing, (iii) CSD ancillary services and (iv) portfolio transfers, bond stripping andreconstitution, and account segregation by currency.The feedback received from T2SNational User Groups and individual market participants (e.g. AG members) by the endof April 2012 was very comprehensive. A second mini-consultation on (i) centralcounterparty and stock exchange transactions, (ii) issuance practices, (iii) message fieldharmonisation and (iv) processing of non-standardised securities will be launched in June2012.The Task Force is expected to deliver its proposals on these matters to the AG bythe end of 2012 for further action. More details are available on the T2S website.

T2S-related harmonisation activitiesAt this stage of the T2S Programme, the harmonisation work is centred around twoobjectives. First, finalising the definition of the relevant standards, either within or outsidethe T2S Community. In this respect, two-thirds of all standards are expected to becompleted by the end of 2012. Second, improving the tools and procedures formonitoring the implementation of harmonisation standards by the markets and actorsrelevant to T2S. As regards progress in the relevant T2S markets, the HarmonisationSteering Group is aiming to deliver to the AG by the end of 2012 a complete report onthe harmonisation status quo, detailing the implementation progress and gaps in all T2Smarkets.

In addition, the T2S Programme Office has become a member of the newly createdEuropean post-trade harmonisation steering group. The group, created in March 2012,is expected to build on the post-trade harmonisation work done so far by publicauthorities and industry associations such as the Giovannini Group, CESAME2 (theEuropean Commission’s Clearing and Settlement Advisory and Monitoring Expert Group),EGMI (the Expert Group on Market Infrastructures) and the ESCB’s COGESI (Contactgroup on euro securities infrastructures). The work of the group complements theharmonisation work in T2S, avoids overlaps with existing activities and aims to ensure

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the development of a true single post-trade market, within the agenda of Europeanfinancial integration.

Activities at European levelOn 7 March 2012 the European Commission published a proposal for a regulation onCSD services and securities settlement, i.e. the CSD Regulation. The aim of theRegulation is to enhance and harmonise the regulatory and operational framework ofCSDs as well as of securities settlement in the EU.This legal act is of key interest tothe T2S Programme as it grants CSDs the opportunity to outsource their settlementservices to T2S and focuses on the safety and efficiency of their cross-border settlementactivity.

Furthermore, the provisions on market access and interoperability serve to improvethe competitive environment within which CSDs and market participants will operatein T2S.The timely implementation of the CSD Regulation and the relevant regulators’technical standards (so-called level 2 legislation) ahead of the T2S go-live date will helpto ensure a level playing field among market participants.

In addition, at its meeting of 15 May 2012 the ECOFIN Council welcomed the progressmade by T2S and reiterated its support for the project as an important contributor tothe establishment of the Single Market for securities services. Further details can befound on the T2S website.

Helmut Wacket, Head of the External Stakeholder Management Section in the T2S Programme Office

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T2S VOICES FROM THE EVENT MARKING THE FIRST SIGNATURES TO THEFRAMEWORK AGREEMENT

Besides marking an important milestone in the T2S project, the signing event on 8 May2012 offered an interesting overview of how T2S is perceived by institutions and marketsin Europe. The Eurosystem and the nine signing CSDs, as the primary stakeholders inT2S, expressed on this occasion their vision of the future post-trading scenario inEurope, with its opportunities and challenges.

ECB President Mario Draghi qualified T2S as a major step towards strengthening theSingle Market in Europe, more precisely as the Eurosystem’s most fundamentalcontribution to the integration of the European market infrastructure.“It is during timesof crisis”, he said, “that we should not allow our commitment to the cause of marketintegration to fade. It is during difficult times that we should remember the importanceof cooperation and coordination”.

A similar view was voiced by Ignazio Visco, Governor of Banca d’Italia, who interpretedthe signature of the T2S Framework Agreement as a remarkable “signal of confidencein the importance of the area’s financial integration, against some tendencies of financialfragmentation that we are currently observing”. Similar messages on the benefits Europewill reap from an integrated securities settlement infrastructure were conveyed bysenior representatives from Bank of Greece, Banque centrale du Luxembourg, DeutscheBundesbank and Banco de España, who were also present at the event.

One image was evoked repeatedly throughout the day: that of the signing of theFramework Agreement as a pivotal step in the “T2S journey”. A satisfying backward lookcould be taken at the distance covered up until that moment. At the same time, thiscelebration marked the start of the second part of the journey, no less challenging thanthe first. One comment was that “T2S has already passed the ‘equator’ and one can seethe end of the project, or in other words,T2S being a reality is not that far off”. It wasalso remarked, however, that the signing of the T2S contract could be seen as the startof a journey, rather than the end of one.

In taking the journey forward, namely working on the further development, testing andimplementation of the T2S platform, the project will count on the continuingcommitment of the Governing Council of the ECB, as underlined by the ECB Presidentin his address.The President and Peter Praet, member of the ECB Executive Boardresponsible for the T2S Programme, went on to congratulate the first nine CSDs toenter into a contractual relationship with the Eurosystem, by saying that without theirvalued support and active participation “T2S would simply not have been possible”.

Following the remarks by the ECB President and Peter Praet, the CEOs of theearly-signing CSDs explained their strategies for getting ready for T2S and making themost of it in the interest of their clients.They emphasised the increased efficiency thatcomes with being part of T2S, and the need for harmonisation in the T2S world.Theyshared with the audience their expectations in terms of enhanced competition andincreased opportunities across markets.T2S will help “the markets to increase thetradability of their securities”, stated Ioannis Papadakis, Deputy Governor of the Bank

INSIGHT

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of Greece, who was representing BOGS. Others gave indications of the nature of thevalue-added services they may offer and of how they expect their business to evolve inthe new European scenario.

The signing CSDs were also the protagonists of a session dedicated to their adaptationplans, during which they described the next steps of their journey as part of the T2SCommunity. How are CSDs planning their future activities as regards the adaptation oftheir systems to T2S and the testing of the new infrastructure? In which migration wavedo they envisage connecting to T2S? How have they structured the work within theirorganisations and how will they continue to involve their markets? How do they intendto take advantage of T2S opportunities, considering their current customer base as wellas new potential users? These are some of the topics tackled in their presentations,available on the ECB website. Further reflections on the CSD adaptation plans can befound later in this issue in Bayle’s View.

Finally, the signing CSDs also responded to specific questions regarding their ownmarkets and their approach to T2S during individual interviews held on the sidelinesduring the event. All interviews can be viewed on the YouTube channel of the ECB:http://www.youtube.com/user/ecbeuro/videos.

Flemming Andersen of VP Lux underlined that “T2S will promote further harmonisationof the securities settlement”, thus echoing many others who throughout the dayadvocated a higher level of harmonisation as a key objective for Europe.

The benefits of T2S were underlined by Paolo Cittadini, CEO of Monte Titoli, who,speaking about the attitude of market participants towards the project, said that “theyhave understood perfectly that T2S could be an opportunity for them, for the financialcommunity and obviously for the CSDs.”

The role of the CSD customers, the main beneficiaries of T2S, will also include anadaptation effort in the next steps of the project, as noted by Jean Hilgers, representingNBB-SSS:“by committing ourselves to T2S we give a signal that they have to be preparedas well at the right time”.

Adaptation was a central topic of many interviews, especially with regard to the CSDs.For instance, Jesús Benito, CEO of Iberclear, pointed out that, though it will requireCSDs to make efforts and sacrifices, full re-shaping will enable them to “have astate-of-the-art technical platform fully compliant with T2S and the harmonisationstandards in Europe”.

Adriana Tanasoiu, CEO of Depozitarul Central, also concentrated on the advantages ofan efficient adaptation to T2S: “we believe that the ones who will be early adopters ofT2S and will adapt the quickest to the new European reality will be the ones who willhave more to gain”.

This is because T2S will open up competition in Europe: quoting Mark Gem, Chairmanof Lux CSD and member of the Executive Board of Clearstream International S.A.,T2S“is manufactured by the Eurosystem but it is distributed by the CSDs, and inevitably a

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level of competition will creep in and it is good as it will keep prices lower and servicesinnovative.”

All proceedings of the 8 May event are available at http://www.ecb.europa.eu/events/conferences/html/t2s_signing.en.html, including a short video summarising the event,the video of the ECB President’s opening address, the videos of the interviews withthe CSDs, the transcript of some of the statements made by Eurosystem and CSDrepresentatives, and the CSD presentations on their adaptation plans.

Anna Nuzzolo,T2S Programme Office

INSIGHT

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KEEPING THE NEXT MILESTONES IN SIGHT

After reaching a milestone in a project, it is important to both celebrate what has beenachieved and look ahead at what is still to come. We have just witnessed the signing ofthe Framework Agreement by the first nine CSDs, which have, in so doing, contractuallycommitted themselves to bringing about two-thirds of the euro area settlement volumeto T2S, and this is an achievement that certainly requires some celebration. However,that is not the end of it.

Still to come is the June deadline for the signing of the Framework Agreement by thoseCSDs that required more time to finalise their feasibility assessments. I expect many ofthe remaining 22 CSDs involved in the Framework Agreement negotiations to sign theAgreement by this deadline, and I am confident that by the end of June we will reachclose to 100% of the euro area settlement volume. Securing these signatures is also veryimportant for the project as a whole, as we move the spirit of the project on fromnegotiation to cooperation.

In autumn 2011 I made the analogy to the “T2S building”1, and I would like to draw onthis once again. With more than 65% of the software developed, as defined in the UserRequirements Document (URD), the building is getting bigger and bigger. The signing ofthe Framework Agreement further cements its foundations, allowing for all those involvedto continue the good work together.

After constructing the building, the next task is to define the layout of the rooms withinit.As I said in autumn last year, while the URD provides the general plan of the building,the User Detailed Functional Specifications (UDFS) gives a more detailed floor plan,illustrating the set-up of the new building. The CSDs are currently carrying out theirdetailed feasibility assessments, which can be regarded as the scrutiny of the floor planproposals made by the Eurosystem in the UDFS. By the end of June 2012, the joiningCSDs will have finalised their feasibility assessments and will be in a position to indicatehow they will adapt their IT systems and processes in order to interoperate with andmigrate to T2S.

As we heard on 8 May, the adaptation plans to T2S differ greatly between CSDs. SomeCSDs foresee a complete re-shaping of their current IT platforms, while others will workto incorporate the T2S system into existing platforms. By the end of June, we will knowabout their assessments in more detail with regard to the impact on internal processesand potential changes to their service offering, the high level planning for the go-live withT2S, and their expected migration date.

The finalisation of the feasibility assessments, together with the high level planning andthe decision on the migration waves, are, therefore, very important for the stability ofthe T2S plan. These elements will enable the completion of the so-called secondsynchronisation point (SP2), known as the “feasibility confirmation”, which will be achievedin August 2012.

BAYLE’S VIEW

1 Please see Bayle’s View in issue no. 10 of T2S OnLine (Autumn 2011).

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At the end of the year, the project is scheduled to reach another milestone. By this stage,the floor plan of the T2S building needs to have been agreed upon by both parties, suchthat any required changes resulting from the scrutiny of the plans are dealt with toeveryone’s satisfaction. Once having found the answers to the questions of “how” and“when” the CSDs will enter the building, the Eurosystem, CSDs and NCBs will mutuallyconfirm that the T2S Programme Plan and the plans of the CSDs and NCBs arecomprehensive and appropriate. This will mark the completion of the thirdsynchronisation point (SP3).

By reaching the milestones embodied in the signature of the Framework Agreement andthe ensuing synchronisation points (SP2 and SP3), the T2S building will becomeincreasingly tangible. It is on this solid basis that the staff of all involved organisationsmust work together over the coming years to ensure that the T2S building is completedon schedule in 2015.

Marc Bayle, T2S Programme Manager and Head of the T2S Programme Office

BAYLE’S VIEW

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The event held on 8 May to commemorate the first signatures to the T2S FrameworkAgreement, which marked an important milestone in the T2S project, also denoted thebirth of the T2S Community.

The first nine CSDs to sign the T2S Framework Agreement represent the first membersof the T2S Community: the Bank of Greece Securities Settlement System, or BOGS(Greece); Clearstream Banking AG (Germany); Depozitarul Central S.A. (Romania);Iberclear (Spain); LuxCSD S.A. (Luxembourg); Monte Titoli S.p.A. (Italy); National Bankof Belgium Securities Settlement System, or NBB-SSS (Belgium); VP LUX S.á.r.l.(Luxembourg) and VP Securities A/S (Denmark).

Representatives from some of these CSDs expressed their views on the impact of T2Son their own markets in various interviews held on the sidelines during the event.Thevideos of the interviews can be watched at http://www.youtube.com/user/ecbeuro/videos

INTRODUCING THE FIRST CSDS OF THE T2S COMMUNITY

Ioannis PapadakisBOGS

Stefan LeppClearstream Banking

Adriana TanasoiuDepozitarul Central

José MassaIberclear

Mark GemLuxCSD

Paolo CittadiniMonte Titoli

Jean HilgersNBB-SSS

Flemming AndersenVP Lux

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What isT2S OnLine?T2S OnLine is a quarterly review that will provide you with first hand informationabout the T2S programme. It will give you project updates, insights into T2S and detailson the current outlook, but one should not forget that behind any project there arepeople.Therefore, in each issue,T2S OnLine will take you closer to the people of theT2S Community. We hope you will find T2S OnLine to be an enjoyable tool forobtaining up-to-date information about T2S.

Where can you findT2S OnLine?T2S OnLine can, of course, be found online, with the option to print if you would stilllike to have a hard copy.

How can you useT2S OnLine?The best way is to read it from top to bottom in order to absorb all of the informationon T2S. However, T2S OnLine is designed to allow for a quick read – by simplyhovering with the cursor, for example, relevant information will pop up automatically(visit the webpage to see how this works,www.t2s.eu). For those requiring morespecialised information, the Insight section will offer two articles on subjects ofparticular interest.

How can you contribute?As with the project itself, we would also welcome your views on T2S OnLine. If youhave any comments or if you would like to propose a subject for the Insight section,we would be very happy to hear from you. You can contact us by e-mail att2-s@ecb.europa.eu

Elin Amundsen, Stefania Secola and Anna Nuzzolo, T2S Programme Office1 http://www.ecb.europa.eu/paym/t2s/html/index.en.html

T2S IS ONLINE FOR YOU

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