Monte Titoli migrated to T2S on 31 August—how did it go?
It was a very big job and a long weekend ahead of go-live on the Monday, but all in all it went very well. It was a joint effort between Monte Titoli and the banks involved—we migrated 60 banks over the weekend, and moved 250,000 positions from the old legacy settlement system to being fully reconciled with Target2-Securities (T2S).
There was a slight delay to the original go-live date, but due to the size and nature of the project it was ultimately a very small one. Any issues were solved and well communicated to the market, and overall we consider the migration a big success.
Monte Titoli is by far the largest central securities depository (CSD) in the first wave of T2S, and so naturally we faced the biggest challenge to be ready for day one. We managed to complete all of our European Central Bank (ECB) testing, begin the migration process, and move all legacy settlement system positions, to ensure we were ready as part of the first wave. This was slightly later than 22 June, but ultimately a great achievement.
The actual system, and the solution, is similar to the other CSDs that went live in June, but the main difference is that ours is larger, and will process much higher volumes.
Some reports suggest that since 22 June, there haven’t been many trades on the T2S network—would you expect that to change now?
From the ECB’s official statistics, I understand that in the first two months of T2S, the platform has been processing an average of 2,000 trades per day. Monte Titoli averages about 80,000 trades per day, so it will be a significant change in terms of volumes.
This means Monte Titoli will be processing 97 to 98 percent of all the volumes on the T2S platform. We were happy that the system proved its resilience in its first days and we are confident that it will continue to do so.
The ECB’s system is structured to support volumes from 21 countries, so when the entire onboarding process is complete there will be considerably more trades to deal with. Monte Titoli is the first CSD testing with such large volumes and the platform has coped well at this stage.
What are the benefits of being in the first wave? Do they outweigh the risks and the expense?
Monte Titoli supported the T2S project right from the beginning, and we committed early on to be the first large CSD to go in to production as part of the first wave. We believe that if you’re going to make the investment, it’s better to do it earlier rather than later, to start realising the benefit as soon as possible. We also think we will have a competitive advantage as part of the first wave and this should put us in good stead in the future.
T2S represents a key strategic opportunity for our business and fits with London Stock Exchange Group’s open access approach to market infrastructure. We can now offer custody and settlement services on European securities to our existing clients, which will transform Monte Titoli from largely an issuer CSD in to an investor CSD. Offering custody on European securities is not entirely new to us, but we have extended our offering and invested in our infrastructure in this area. Being part of the first wave has given us the opportunity to prepare ahead of our competitors; something we think will benefit us and our customers in the long term.
Of course, it is a risk to go first. It means more investment, more testing and more experimenting, but it’s that preparation that reduces risk and ultimately provides opportunities in the long run. We have strong expertise in-house and were always confident that we would be ready as part of the first phase.
What kinds of asset servicing solutions have emerged?
One trend we have noticed in the last few months is a demand from large global custodians to directly access CSDs in Europe. In the past, global custodians would connect to a CSD through an agent bank, but this new trend means agent banks are being dis-intermediated, and as a result we have to be able to offer an increasingly comprehensive range of services. This is where we have invested considerable time and resource and see it as a big area of potential growth.
We are launching a full asset servicing capability for Italian securities. The requests from custodians are driven mainly by a desire to reduce costs and risk wherever possible. For global custodians acting as a trustee or a depository bank for investment funds, there are strict rules on risk related to loss of financial instruments, coming from the Alternative Investment Fund Managers Directive and UCITS V. If they’re linked to a CSD, that minimises their risk, and therefore the execution duty related to that risk.
We remain in active dialogue with many global custodians with regards to this and we have, in parallel with T2S, developed a full fiscal service for domestic securities. We are also taking further steps towards building our asset servicing solutions.
Now Monte Titoli has joined T2S, what is the next step?
T2S will bring more standardisation and harmonisation to the market, but at the same time, the CSD Regulation that is about to be introduced is likely to bring more competition in a number of ways, perhaps between CSDs, but mainly between CSDs and custodians—agent banks, in particular.
Our priority now is to offer our customers as comprehensive a range of services as possible, and to benefit from the opportunities brought about by recent changes. The strategic investments we have made for T2S will help with this, but we are also planning to further expand our offering.
We have launched our collateral management solution, X-COM, and developed our asset services and fiscal services for domestic securities, and now the plan is to continue investing in these areas, working towards becoming a fully-fledged investor CSD.
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