Financial industry expecting significant benefits from T2S

Financial industry expecting significant benefits from T2S

GFT and the ICMA European Repo Council have released the results of an industry-wide survey to assess market preparedness and industry attitudes towards Target2-Securities. The survey results provide insights on industry participants’ current understanding of T2S, their level of practical engagement and their understanding of the consequences of T2S to their individual firms.

London, 22nd January 2014: GFT and the ICMA European Repo Council have released the results of an industry-wide survey to assess market preparedness and industry attitudes towards Target2-Securities. The survey results provide insights on industry participants’ current understanding of T2S, their level of practical engagement and their understanding of the consequences of T2S to their individual firms.

The majority of respondents (75%) agreed or strongly agreed that they were aware of the implications of T2S, with less than 20% believing that doing nothing was a viable option. More than 80% of respondents felt that T2S will have a significant impact on their organisation. One surprising and concerning message is that the types of firms who perceived T2S as having less impact included Custodians and Central Banks.

Most business areas anticipate benefits from T2S. 71% of operations staff and 62% of funding staff see positives. Network Management respondents were more cynical with only 45% seeing benefits. In the front office, 44% of cash traders and 55% of repo traders see benefits. For repo traders, benefits are likely to include increased liquidity collateral via more efficient settlement and harmonisation of settlement deadlines.

The majority of respondents have plans and initiatives underway in response to T2S, with many reviewing their Network Management and Custodian arrangements. Survey responses indicated that the bulk of the organisational changes in preparation for T2S are in the payments and cash management areas of organisations (62%).

When it comes to benefits, 77% believe T2S will result in a greater pool of collateral and increased liquidity across the industry, 66% believe in greater tri-party interoperability and 51% in a decrease in the number of agent banks.

On connectivity, most organisations (including sellside firms) are planning on connecting to T2S indirectly i.e. Indirectly Connected Party (ICP), but this is still felt to have major impacts on technology. However, the majority of respondents feel that costs will either not change at all or increase.

Emily Cates, specialist in operational processing, GFT commented: “The survey results should give industry participants comfort that the implementation of T2S is well understood. Areas seeing benefits in T2S include Operations and Cash Management, likely a result of the opportunity to simplify settlement and funding mechanisms by reducing the custodian bank network. Front Office are bullish too: the benefits of improvements to collateral liquidity are likely to be the driver. Over 80% of respondents feel there is significant impact of T2S. That needs careful planning. The time for action is now.”

Godfried De Vidts, Chairman of ICMA’s European Repo Council, adds: “We will use the survey results to help guide and shape our approach in the provision of T2S information, and give guidance and training to our members. The market now sees that T2S will improve settlement efficiency, timeliness and remove complexity. However, we do wonder if T2S represents a missed opportunity for repo for it will not improve repo end leg settlement nor lifecycle events.”

To download the full survey findings visit the ICMA website here.

About the survey:

GFT conducted the survey in summer 2014. The survey respondents represent a wide cross-section of the industry with 47% representing sell-side institutions, 14% custodians, 11% buy-side and 28% other (CCP, central banks or supranationals).

24% represented back office and middle office, 20% collateral, 20% front office, 14% treasury, 8% technology, 4% business management and 10% other.

The primary trading office location of 67% of respondents was the Eurozone, 18% Europe but non-Eurozone, 12% Americas and 3% Asia-Pacific.

About the GFT Group:

The GFT Group is a global technology partner for future digital issues – covering everything from discovering innovation to developing and implementing sustainable business models. Within the GFT Group, GFT stands for competent consulting and reliable development, implementation and maintenance of customized IT solutions. The company is one of the world’s leading IT solutions providers in the banking sector.

emagine offers companies the opportunity to staff their strategic technology projects both quickly and flexibly with capable experts. To achieve this, emagine has an international network of highly qualified IT and engineering specialists at its disposal.

CODE_n, the GFT Group’s innovation platform, offers international start-ups, technology pioneers and established companies’ access to a global network. It’s where ideas become business.

Headquartered in Germany, the GFT Group has stood for technological expertise, innovative strength and outstanding quality for over 25 years. Founded in 1987, the GFT Group is represented in eleven countries by its 3,100 employees. The GFT Group is listed on the Frankfurt Stock Exchange (Prime Standard).

www.gft.com

About ICMA:

ICMA represents a broad range of capital market interests including global investment banks and smaller regional banks, as well as asset managers, exchanges, central banks, law firms and other professional advisers.

It has over 470 member firms located in 55 countries. ICMA’s market conventions and standards have been the pillars of the international debt market for almost 50 years, providing the framework of rules governing market practice which facilitate the orderly functioning of the market. ICMA actively promotes the efficiency and cost effectiveness of the capital markets by bringing together market participants, regulatory authorities and governments.
The European Repo Council is an industry representative body that has fashioned consensus solutions to the emerging, practical issues in a rapidly evolving marketplace, consolidating and codifying best market practice. It promotes the wider use of repo in Europe, particularly among banks, by providing education and market information.

www.icmagroup.org