A majority of financial industry participants believe that TARGET2Securities (T2S) will have a significant impact on their organisations, but custodians and central banks don’t expect to be heavily affected, according to a survey by GFT and the International Capital Market Association (ICMA) European Repo Council.
Of the respondents, 75 percent agreed or strongly agreed that they are aware of the implications of T2S, and 80 percent agreed that it would have an impact on their business. Only 20 percent answered that doing nothing was a viable option.
Of those that don’t expect to be affected, most were central banks and custodians.
The majority, however, expect to benefit from the move to T2S, with 71 percent of operations staff and 62 percent of funding staff anticipating positive changes.
In the front office, 44 percent of cash traders and 55 percent of repo traders expect positive traders, while this figure is just 45 percent among network management staff.
Most respondents thought that the major changes will be within payments and cash management, with 62 percent agreeing with this.
However, 77 percent believed that T2S would lead to a greater pool of collateral and increased liquidity, and 66 percent anticipate greater tri-party interoperability. Just over half, 51 percent, also thought it would lead to a decrease in the number of agent banks.
The survey also found that a majority of repo traders believed that the benefits included an increase in liquidity collateral, via more efficient settlement and harmonised settlement deadlines.
Most firms said they have plans and initiatives underway in response to T2S, with many reviewing their network management and custodian arrangements.
It was evident that a majority of respondents, including sell-side firms, are planning to connect to T2S indirectly. There is a feeling that this will have an impact on technology, and many believed that their costs will either increase, or remain the same.
Emily Cates, a specialist in operational processing at GFT said: “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 the ICMA’s European Repo Council, added: “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 and 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.”
Survey respondents included representatives from sell-side institutions, custodians, buy-side firms, CCPs and central banks. The majority were from firms within Europe, while 12 percent were from the Americas and 3 percent were from the Asia-Pacific region.
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