European Post-Trade Infrastructure Evolution: Switching Gears for the Long Run

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11 June 2017
Josephine de Chazournes and Arin Ray

Abstract

T2S and regulatory and market structure changes are creating opportunities in European post-trade operations, most notably in cross-border settlement and collateral management.

Celent has released a new report titled European Post-Trade Infrastructure Evolution: Switching Gears for the Long Run. The report was written by Joséphine de Chazournes, Senior Analyst, and Analyst Arin Ray, both with Celent’s Securities & Investments practice.

The report describes how market changes are influencing products and services in European post-trade, and how that is resulting in emergence of new strategies and business models, as well as different types of custodians, central clearing counterparties (CCPs), and broker-dealers. The report also compares and reevaluates what we saw in 2013–2014.

Although implementation of the TARGET2 Securities (T2S) platform has been smooth, the market and regulations have changed, creating challenges as well as opportunities for post-trade participants. Settlement is becoming commoditized, while asset servicing is being decoupled from settlement. But the biggest shakeup is the need for efficient collateral management.

Consolidation is inevitable, especially among central securities depositories (CSDs) and custodians. This change will favor players with scale, such as regional players in custody. Broker-dealers can significantly optimize cost if they are prepared to overhaul their operating models.

“This is a marathon, and marathon runners have sore legs. T2S enables cross-border securities settlement harmonization and collateral fluidity; market participants are adapting to this new infrastructure with new services, products, and business models. They are also forced to take into account new drivers of change such as the Brexit vote and the advent of the cloud,” says de Chazournes.

“The importance of collateral is hard to overstate, but maximizing collateral efficiency will involve significant changes in business and operating models. We expect many players who so far have taken a wait and watch approach to finally start making decisions about their strategies for the post-T2S world,” Ray adds.

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