Philip Brown on T2S


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Article by Clearstream Executive Board Member Philip Brown, published in the Journal of Securities Operations & Custody, Volume 6 Number 2.
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Philip Brown on T2S

  1. 1. Brown:JSC page.qxd 05/12/2013 17:49 Page 122 Journal of Securities Operations & Custody Volume 6 Number 2 TARGET2-Securities: A platform for solving some of the key structural issues raised by the financial crisis and its aftermath Philip Brown Received (in revised form): 18th October, 2013 Clearstream Banking, 42 Avenue J. F. Kennedy, L-1855 Luxembourg; Tel: +352 2 43-3 24 25; E-mail: Philip Brown Journal of Securities Operations & Custody Vol. 6 No. 2, pp. 122–131 ᭧ Henry Stewart Publications, 1753–1802 Page 122 Philip Brown is a member of the Clearstream Executive Board and Global Head of Client Relations. He moved to his current position from Clearstream’s London office in 2008 where he was general manager. Philip joined the company in July 2005 after spending seven years at The Bank of New York, latterly as managing director and head of European Sales; two years at Morgan Stanley International; and seven years at Barclays plc. He holds a degree in banking, insurance and finance from University College North Wales, Bangor. ABSTRACT Despite the increased level of attention the TARGET2-Securities (T2S) system is receiving from market participants, many still believe that T2S is just a settlement system, a piece of software that will not deliver product capabilities fundamentally different from those available today. It is indeed true that T2S is just a settlement platform, but it is the only platform that allows domestic settlement and cross-border settlement to be effected in exactly the same way. Several of the features of the platform do not exist today in a number of incumbent central securities depository (CSD) platforms (eg autocollateralisation, partial settlement, netting and complex algorithms to maximise the number of trades which may be settled given the available cash). In addition, T2S will alter the post-trade landscape on a permanent and positive basis, principally as an enabler for new products and services, but also by dramatically changing the context within which existing products and services are delivered. Market participants must challenge their existing operating models and leverage T2S in the deployment of their products, in pursuit of their wider business goals.The level of practical and technical project adaptation currently being undertaken varies greatly by client segment. Research discussed in this paper suggests that many are still trying to understand some of the wider implications, beyond crossborder settlement efficiency, and are yet to mobilise the necessary resources to maximise the opportunities T2S will enable. It is a pressing issue as the platform will be launched in phases between 2015 and 2017. Major IT developments will have to be carried out in 2014 to be ready for the first wave, leaving only one budget cycle between now and then for approval of funding for necessary adaptation. Keywords: liquidity, collateral, funding, settlement, capital, asset security, CSDs INTRODUCTION In 1995, when many European Union (EU) countries were preparing for the introduction of the euro, the Council of the European Monetary Institute (EMI) decided that all EU national central banks should be connected to a central euro payments service by 1999. The TARGET system linked the existing national realtime gross settlement (RTGS) systems and
  2. 2. Brown:JSC page.qxd 05/12/2013 17:49 Page 123 Brown became operational in January 1999, following the euro’s successful implementation. It soon became apparent that TARGET participants needed an optimised and more harmonised service and, in October 2002, the Governing Council of the European Central Bank (ECB) decided on the next-generation TARGET system: TARGET2. TARGET2 is now the largest RTGS system in the world, with the ECB confirming the following figures for 2012:1 • daily average of 354,185 payments, representing e2,477bn; • 999 direct participants, 3,386 indirect and 13,313 correspondents; and • average transaction value of e7.1m. T2S was first announced by the Eurosystem in 2006, seven years after the introduction of the euro. It advances the notion of Target2 on the basis that, despite the introduction of a single currency across 17 countries and the associated reduction in exchange-rate uncertainty, the European post-trade landscape had remained highly fragmented from country to country. ‘Whilst regulations such as MiFID aim to bring interoperability to the pretrade space, the post-trade arena continues to languish in silo fashion, adding unnecessary costs at a time when financial houses large and small are struggling to make ends meet.’2 Cross-border settlement in particular is expensive and complicated, involving multiple intermediaries in the custody chain. The cost of cross-border transactions in the EU is said to be ten times higher than domestic equity transactions.3 Settlement has been a de facto national monopoly with little or no competition among European providers. To date, central securities depositories (CSDs) have operated along national lines, providing settlement and services according to market-specific practices. There is also increased competitive pressure from the USA, with its highly centralised clearing and settlement infrastructure provided by the CSD, Depository Trust & Clearing Corporation (DTCC) — single language, single currency and single legal framework — in the European market. As the world’s largest market economy, it will remain successful in capturing new issuance flows. The end-to-end synthetic cost per trade in Europe, the Middle East and Africa (EMEA) is estimated to be four times more expensive than in America for cash equities and twice as expensive for cash fixed income.4 Fragmented markets with complicated infrastructure and patchwork IT solutions have a very real detrimental impact on the cost per trade. Investors have found it difficult to consolidate asset pools, as the assets exist in a variety of different locations and are accessed via different chains of custodians, sub-custodians and CSDs. This fragmentation further complicates collateral management, making meeting one’s collateral obligations both cumbersome and a drag on investment performance. The lack of harmonisation on a legal, technical or fiscal level is not only bad from a cost perspective, but it also results in a higher level of risk for participants. These national barriers — a defining characteristic of the existing market infrastructure — are a practical impediment to remote access to national clearing and settlement systems. In late 2001, the European Commission’s Consultation on Clearing and Settlement — an expert group led by Alberto Giovannini — identified and listed 15 barriers to efficient cross-border clearing and settlement.5 The creation of a standardised framework for settlement on the T2S platform addresses six of the 15 Giovannini barriers and is also widely expected to have downstream positive effects on fur- Page 123
  3. 3. Brown:JSC page.qxd 05/12/2013 17:49 Page 124 TARGET2-Securities ther pan-European harmonisation for income, corporate actions and tax. Although the T2S concept was first proposed in 2006, prior to the collapse of Lehman Brothers, Bernard Madoff funds and the housing bubble, it nonetheless will dovetail with the regulatory response to the wider financial crisis — Capital Requirements Directive (CRD) IV 2013, Alternative Investment Fund Managers Directive (AIFMD) 2013, European Market Infrastructure Regulation (EMIR) 2012, CSD Regulation (CSDR) (still under EU consideration) etc — with the aim of protecting the market from future systemic risk and providing much-needed market stability. T2S AS A PLATFORM The benefit T2S will bring for European cross-border settlement is widely accepted but it is less widely acknowledged that T2S could bring many more tangible benefits for providers (and their customers) if they are able to flesh it out with additional services. One could make the comparison between T2S and smartphones, where T2S is comparable to the basic handset and the additional services that really add value and thereby optimise the user experience are the Apps. The commoditisation of settlement will encourage CSDs to move up the value chain and deliver new services. Today there is no provider which could become a pan-European sub-custodian, nor could any CSD act as the European CSD. Anybody aspiring to do so will need to cooperate with other market participants in order to prioritise the complementary business opportunities they will be able to offer, in addition to their existing service suite, and determine which should be self-manufactured and which would be better achieved through smart partnerships.6 If the earlier analogy is extended further, one could say that participating CSDs are the Page 124 App developers and, while they are in competition with one another, there is also space for collaboration and partnership deals. With the de-coupling of settlement and asset services, the supply chain dynamics will change and become more open, bringing the potential for greater competition and customer choice. The lack of a single comprehensive product and the absence of an integrated pan-European trade processing and asset servicing platform mean that, for customers, it is important to understand which sub-products can be combined as part of an overall suite to feasibly add the most value. COLLATERAL MANAGEMENT Over the last five years, the importance of collateral management has grown exponentially throughout the financial sector and will continue to do so with further regulation. The 2011 Accenture ‘Collateral Management’ study commissioned by Clearstream claimed that the total assets of the global banking system are estimated to be worth e70trn, yet the total value of securities being used as collateral is estimated to be approximately e10trn; thus, a great deal of collateral is not being mobilised. ‘This suggests there is further potential for growth in monetising unused assets through improved collateral management.’7 In the study it was estimated that collateral fragmentation will cost companies about e4bn annually. This estimate is seen to be conservative as it was made before the enforcement of the oncoming regulatory changes, which are expected to increase the demand for quality collateral and also the need to manage collateral more efficiently. At the time, the main concern was with meeting the demands of balance sheets
  4. 4. Brown:JSC page.qxd 05/12/2013 17:49 Page 125 Brown under the weight of the regulatory agenda. Now it is considered strategically imperative to have access to quality collateral. One of the causes of ineffectual collateral management is the inherent disconnection between CSDs regulated along national lines to support international business. CSDs, by their nature, are national entities, which is not a problem for their core CSD functions, but can be for efficient collateral management. The panEuropean fragmentation of the CSD infrastructure due to national barriers means that the movement of cross-border collateral to where it is required has been expensive (both operationally and in terms of market charges) and a largely manual — ie slow — process. As a result, financial institutions have been unable to manage their collateral effectively, thus creating a situation of excessive collateral in areas where it is not required or a lack of collateral in an area where it is required. If a market participant does not use a specialist collateral management provider, they themselves will need to move collateral from one place to another (and crossborder) much more often than before. If the participant is using a collateral management provider then they may find their assets effectively immobilised in the network of their service provider, who will manage them through book entry movements on their books and records. For domestic CSDs to truly act as European entities, it is important for all T2S-participating CSDs to interconnect with each other in order to maximise counterparty reach. It is this aspect that elevates T2S from being a settlement platform to a mechanism actively promoting a more harmonised European post-trade infrastructure, facilitating seamless interoperability between CSDs. This mechanism enables individual CSDs to interconnect through a series of bilateral links which have been assessed for Eurosystem credit operations. This view should be shared by all entities looking to provide a comprehensive T2S solution. The link assessment could significantly increase the workload for the ECB in terms of processing — CSDs to CSDs within T2S means roughly 270 links — but will be essential in delivering a secure framework for T2S and maximising its potential. In September 2013, the ECB published a new framework for the assessment of CSDs and CSD links to determine their eligibility for use in Eurosystem credit operations. Today, each bilateral link is assessed separately.With the new approach, the local regulator’s oversight standards cover four of the nine standards which usually would be assessed by the ECB/Eurosystem. Adherence with the local regulatory standard will confer first-level compliance with the ECB/Eurosystem and only the second layer then needs to be assessed. The new framework simplifies the former user assessment process and avoids duplication in the conduct of oversight and user assessments against similar standards and requirements.8 One expects that this will result in link assessments being undertaken more quickly. This assessment will become one of the most important aspects of a service provider as global custodians are measured and compared on the number of markets around the world which they can access. CSDs in T2S also will be measured by their network reach. Another driver for optimising the movement of collateral from one CSD to another will be the number and breadth of instruments which can be settled in T2S. Some CSDs consider this to be of vital importance and are planning to make eligible their entire settlement volume, giving their customers the opportunity to consolidate all of their assets whether they are from T2S markets or not. This will facilitate a much bigger pool of securities available for collateral realignment on one single technical platform. Clearstream, for exam- Page 125
  5. 5. Brown:JSC page.qxd 05/12/2013 17:49 Page 126 TARGET2-Securities Figure 1 New collateral streams arising through the introduction of the European Market Infrastructure Regulation (EMIR) 2012 and Dodd–Frank 2010 CCP, central counterparty; CSD, central securities depository; ICSD, international central securities depository; T2S, TARGET2-Securities Source: PricewaterhouseCoopers (PwC) ‘The 300-Billion-Euro Question: Survey on the Benefits of Target2-Securities’, PwC, Frankfurt. ple, plans to make international debt securities (‘Eurobonds’) eligible for settlement in T2S. If the issuer has chosen the New Global Note (NGN) legal and holding structure, the holder also may use the security as eligible collateral for Eurosystem monetary policy, assuming it meets the other requirements (as opposed to Classical Global Notes (CGNs) which are not permitted at all). T2S will standardise cross-border settlement: harmonised settlement processing cycles and standards will facilitate more seamless cross-border movement of assets. Consequently, much of the labour and cost will be removed from the process of moving securities across European borders between the 24 participating CSDs in real time. Moving securities which can be used as collateral becomes a lot easier, a lot cheaper and they can be mobilised to markets where they are needed, thereby eliminating the fragmentation that characterises the market today. This also will help participants to meet new collateral requirements as set out under EMIR. Page 126 Banks are faced with a dual challenge in terms of collateral demand: because of EMIR and the Dodd–Frank Act 2010 they must collateralise their over-thecounter (OTC) derivative activity, while, in order to fund their activity, they either need to go to their central bank (which will ask for collateral) or they will need to perform repurchase agreement (repo) with other banks or buy-side firms which have excess liquidity. To perform repo, banks must have repo-able assets. The 2013 T2S study written by PricewaterhouseCoopers and Clearstream illustrates this point, as shown in Figure 1. Case study In response to the additional collateral requirements under EMIR and Dodd–Frank, banks increasingly are looking to mobilise assets and to increase access to buy-side liquidity to diversify their funding sources. Buy-side institutions, in turn, are looking to leverage the collateral received from banks to re-use and cover central counterparty (CCP)/third-party margin obligations. In some cases, this may
  6. 6. Brown:JSC page.qxd 05/12/2013 17:49 Page 127 Brown need to be supplemented with a collateral transformation trade to meet the collateral eligibility criteria of the third party. InterCSD settlement of a chain of collateral movements can be settled in a matter of minutes in a world with T2S.9 REDUCED LIQUIDITY CONSUMPTION One of the most underrated benefits of T2S is the ability to significantly reduce liquidity consumption for settlement purposes. T2S enables financial institutions to reorganise their euro settlement funding arrangements. Currently, a combination of proprietary home accounts, RTGS main accounts and sub-accounts, often accessed through a network of cash correspondent banks, are used by investors to make euro payments linked to settlement obligations. If a bank is a direct member of a CSD then today it must reserve overnight cash for each securities market where it has settlement activity. This means that the reserved cash liquidity is blocked overnight, locking it from being accessed to cover other simultaneous market shortages. With T2S, investors have the option of selecting different arrangements for their dedicated cash accounts (DCAs): operating one single DCA, multiple DCAs or outsourcing completely by appointing a third-party payment bank. If T2S users opt to use a payment bank, there are further considerations with regards to collateral. T2S offers only payment banks a central bank credit mechanism to support settlement. Mostly, this is extended for free by national central banks in exchange for ECB eligible collateral. As this facility is offered to payment banks only, the choice of payment bank becomes important or vital if an investor wishes to mobilise ECB-eligible collateral that is held outside T2S. Put simply, not all payment banks will have sophisticated enough collateral management systems to mobilise collateral regardless of whether it is held within T2S or outside it. This is part of a broader new perspective on credit attached to T2S. T2S, and the principle of ‘settlement netting’ that underpins its activity, enables market participants to be less reliant on the credit facilities offered by their custodians. Traditionally, credit has been used by custodians as a competitive service and is normally bundled with custody or transaction fees or, less commonly, priced on a standalone basis. Going forward, settlement via T2S will lead to reduced credit consumption and an unbundling of credit-related charges. For custodians themselves, there can be another benefit. Global custodians without highly efficient cash projection engines often leave idle cash at their sub-custodian as a ‘buffer’, or because they did not accurately project all of the activity taking place on a given day. As an asset, this must be included in their risk-weighted assessments. T2S should significantly reduce the amount of idle cash balances. Similarly, for customers, in the current interest-rate environment, the cost of maintaining such buffers is relatively low, but at higher interest rates in the future this could increase significantly. There is also opportunity cost to consider, as having cash pooled in one place will enable customers to do more business with the same resources. Providers that can offer customers sophisticated products may generate higher returns in supporting repo activity, for example, than a provider with no valueadded services having to rely heavily on net interest income. These are significant developments for market participants and important considerations when assessing the overall ‘cost’ of T2S. The pooled account will enable T2S participants to manage and net all settlement-related cash movements in one single account. Instead of having to provide funding for a transaction while waiting for cash from another to settle, both transactions now can be Page 127
  7. 7. Brown:JSC page.qxd 05/12/2013 17:49 Page 128 TARGET2-Securities processed in the same settlement cycle, reducing the need for liquidity. CAPITAL REQUIREMENTS SAVINGS In September 2013, the European Banking Authority (EBA) published its fourth report of the Basel III monitoring exercise on the European banking system.10 This exercise, run in parallel with one conducted by the Basel Committee on Banking Supervision (BCBS) at the global level, allowed the gathering of aggregate results on capital, risk-weighted assets (R WAs), liquidity and leverage ratios for banks in the EU. Compared to the previous exercise, based on 30th June, 2012 data, the report estimates a decrease in the capital shortfall of e29.1bn (equivalent to 29.3 per cent), ie European banks have made significant progress in boosting their capital positions and thus strengthening the overall resilience of the EU banking system as a result of the EBA recapitalisation exercise. There is a consensus over the growing need to consolidate pools of collateral and manage the existing ones efficiently. Clearstream’s study with PwC comprised a series of internal research studies supported by in-depth focus interviews with a number of market participants and a quantitative estimate of the possible effects of Basel III rules on participants if these rules are expanded to cover noncommitted intraday credit facilities offered by custodians.11 According to PwC partner, Thorsten Gommel: ‘We don’t disagree that most of the credit extended for settlement purposes intraday doesn’t count when it comes to calculating capital adequacy ratios, but we see a significant risk this will change under Basel III when banks will have to prove their funding is solid.’12 To quantify the capital savings potential, Page 128 Clearstream analysed the liquidity savings it could make itself (15 per cent) via a pooled cash account, based on millions of crossborder settlements in Germany, France, the Netherlands, Belgium and Italy. It then transposed this to the broader settlement volumes in the eurozone. The study indicates that the amount banks could save represents 11 per cent, or e33bn, of the e295bn capital shortfall the Organisation for Economic Co-operation and Development (OECD) estimated using 2011 year-end positions.13 Harmonisation of settlement cycles in T2S is expected to increase the netting potential even further and will reduce the margin requirements at CCPs by one-third.14 ASSET SERVICES With a backdrop of settlement commoditisation, increased competition and market consolidation, the operating model for asset services becomes critical for CSDs. For historical reasons, a number of CSDs offer basic asset services for their domestic market, perfectly adequate within the context in which they were being provided, for example, with participants having long accepted that bilateral relationships with issuers/issuers agents and intermediation by agent banks were a necessary fact of life. Indeed, many local specificities are best handled by the domestic CSD who has close relations with the relevant market bodies and long-standing history, and understanding of domestic market nuances. However, while this may be true for Issuer CSDs, there are only a limited number of CSDs who can credibly operate in the international space as Investor CSD. Asset servicing for non-domestic securities is a specialist, high-cost business based on economies of scale. Issuer CSDs who, even today, have gaps like tax services, proxy voting and even mainstream corporate action processing, will find it
  8. 8. Brown:JSC page.qxd 05/12/2013 17:49 Page 129 Brown virtually impossible to build a credible inhouse capability before T2S goes live. Those lacking these services may look to partnerships to help them complete their asset services product offering post-T2S. In a number of recent interviews, Clearstream validated with customers that asset servicing remains one of the most important concerns, because T2S does not support asset servicing but it will fundamentally change the traditional relationship between settlement and asset services. In processing terms, today asset servicing and settlement are inextricably linked at the point of manufacturing but the possible separation of transaction flow, with the introduction of T2S, will have a direct impact on business. It is something that everyone in the industry should now be addressing during discussions with their provider. Clearstream have taken the opportunity to streamline the end-to-end asset services flow and create additional value for customers through local market partnerships. The local partnership model will redefine roles and responsibilities between Clearstream and their local partner, the key agent banks in their respective markets. In removing some of the duplication in the end-to-end process, a number of benefits can be passed onto the customer including: • improvement of deadlines; • Increased proximity to market, timeliness of notifications; • local expertise and market advocacy; • reduced operational risk, as double processing is avoided. It is widely forecast that T2S will act as a catalyst for harmonisation in the asset services space, though it is expected to be limited to transaction management in the short to mid-term. Different legal, tax and market regimes will, however, need to be addressed before progress will materialise beyond market claims and buyer protec- tion. Deloitte Luxembourg offer the following prediction: ‘The ECB and regulators still have a significant amount of work ahead of them to meet this objective in the coming years. It is widely recognised that asset servicing is a complex area with important differences in market practices, both across financial instruments and market players. Hence we can legitimately assume that the full harmonisation process of asset servicing will take many years and will probably not occur before 2020.’15 Given the complexity and risk inherent in the asset services space, and the difficulties in achieving harmonisation as identified above, customers will need to critically analyse and find their own tipping point for the trade-off between the benefits of consolidation and their servicing needs. AIFMD AND DEPOSITARY BANK RISK Naturally, global custodians also are taking this opportunity to review whether their existing network model makes sense in a post-T2S world. Post Lehman/Madoff asset protection within their custody chain has become a critical factor. What Lehman Brothers taught us was that, even if assets could be recovered, customers had no idea how long it would take. Customers now want to know that they can access their assets at all times. Today, the interoperability between CSDs is inefficient: it is necessary to open accounts with each issuer CSD, of which there are more than 30. Practically, the cost of doing this is too high and would require significant operational support to maintain. There is increased market demand for direct CSD holdings. Customers want to have assets in an account in their own name — operated Page 129
  9. 9. Brown:JSC page.qxd 05/12/2013 17:49 Page 130 TARGET2-Securities or not by an agent bank — to remove the risk (and the requirement to allocate capital against that risk). AIFMD and the Undertakings for Collective Investment in Transferable Securities (UCITS) V directive also are driving factors for a rethink. AIFMD reverses the burden of proof onto the custodian in the event of the loss of an asset — ie they have to prove they were not negligent — and full legal responsibility and liability for securities held by an alternative investment fund falls on the designated depositary bank. PwC sees this as a significant risk ‘since the equity capital of custodians is usually very small compared to the sum of assets they hold under custody’.16 In order to assess the amount of capital necessary to be allocated to cover this liability, one must evaluate the potential loss. This is problematic since this is tail-end risk — an extremely rare occurrence of a potentially large loss. The narrow exemptions permitted under AIFMD are no longer possible under UCITS V; however, if assets are held with a securities settlement system (SSS) then, under the terms of AIFMD, this is not considered ‘delegation’. Therefore, custodians can reduce their liability exposure in T2S markets by centralising safekeeping of assets across fewer CSDs, leveraging the CSD to CSD links that some CSDs intend to implement. Custodians are looking at different access models to achieve AIFMD relief, which includes the setting up of their own CSDs, or partnering with an existing CSD. Understanding the impact of these changes to CSDs and their operational situation is critical in order for a customer to know what questions to ask. • ‘As an institution, will your T2S access point allow you to connect to as many other CSDs as you need?’ • ‘Will these links be assessed for Eurosystem collateral eligibility?’ Page 130 • ‘Is your future partner able to invest in their services to provide a service sufficiently flexible and scalable to your needs?’ ISSUANCE Issuance plays a particularly interesting role within the context of T2S as it affords CSDs — which, it should be remembered, will lose their traditional settlement activity — the opportunity to become a consolidated point of issuance for Europe. A service provider which can offer a pan-European distribution model, accompanied by the right service levels and access to market intelligence, may be able to attract more than just government paper, traditionally issued in the local market for obvious reasons. In a post-T2S world a domestic issuer will be able to have a single global issue deposited with a domestic CSD and distribute it through T2S to investors in any other T2S jurisdiction while continuing to benefit from central bank primary market funding. This will resonate globally with issuers wishing to raise debt from the European capital markets. CSDR will further reinforce this type of concept and dovetails with T2S to provide issuers with a genuine choice of CSD based on competitive factors. Custody follows issuance. Having an integrated platform with issuers and investors in the same place will bring lower costs. Those CSDs which can bring together state-of-the-art issuer services and investor services could become the first choice pan-European service provider to issuers and investors alike. CONCLUSION Clearstream customers estimate that they are spending approximately 70 per cent of their budget on keeping up with the regulatory tsunami and are asking themselves: ‘How will I be able to sustain myself and
  10. 10. Brown:JSC page.qxd 05/12/2013 17:49 Page 131 Brown generate margins in the future?’17 The same regulations also are forcing financial institutions to revisit their business models. Should customers focus on scale for growth, flexibility to add products and services or just primarily on reducing operating costs? When people try to make a T2S business case today, savings from cross-border settlement costs are still the central justification. There is a preoccupation with the settlement cost question: ‘Will it or won’t it be 15 cents?’ The settlement cost versus build or adaptation cost comparison does not look favourable, but this is like buying a 32Gb smartphone just to make telephone calls. T2S creates a unique base from which to deliver the services to meet those regulatory challenges; it is inherently linked to these questions and should be at the core of customers’ strategies for defining a new operating model to meet their regulatory-driven business model demands. It can be a platform, a genuine opportunity for solving some of the key structural issues raised by the financial crisis and its aftermath. Addendum Since this paper was written, the EU changed the wording of a paragraph in the recent draft version of UCITS V, apparently resulting from their concern over the interpretation of the same section in AIFM directive. Clearstream remains highly engaged with regulatory bodies at National and European level in order to clarify the implications for both UCITS V and AIFMD and take this forward. REFERENCES (1) See: t2/html/index.en.html, (accessed 25th September, 2013). (2) Cognizant, (2012) ‘Target2-Securities Platform: Implications for the Post-Trade Arena’. (3) European Central Bank (2011) ‘Settling Without Borders’, November. (4) In discussion with Jared Moon, McKinsey & Company, September 2013. (5) The Giovannini Group (2001) ‘Cross border clearing and settlement arrangements in the European Union’, ‘First Giovannini Report’, November, available at: internal_market/financialmarkets/docs/ clearing/first_giovannini_report_en.pdf, (accessed 25th September, 2013). (6) Brown, P. (2012) ‘Smart partnering: The next evolution in the post-trade space’, Journal of Securities Operations & Custody, Vol. 5, No. 2, pp. 98–109. (7) Accenture (2011) ‘Collateral Management: Unlocking the Potential in Collateral’. (8) See: pdf/other/frameworkfortheassessmentof securitiessettlementsystems201309en.pdf? 8cc2d9d99dc95b97862fa4c5f23a9577, (accessed 25th September, 2013). (9) PricewaterhouseCoopers (PwC) ‘The 300-Billion-Euro Question: Survey on the Benefits of Target2-Securities’, PwC. (10) See: eba-publishes-results-of-the-basel-iiimonitoring-exercise-as-of-end-2012, (accessed 25th September, 2013). (11) This helped to inform PwC, ref. 9. (12) SIBOS_2013__Is_T2S_European_Savior _or_Windowdressing_for_Basel_III__ 4798, (accessed 25th September, 2013). (13) See: financial-markets/Deleveraging%20 Traditional%20versus%20Capital%20 Markets%20Banking.pdf (p. 22) (accessed 2th September, 2013). (14) In discussion with Paul Bodart, member of T2S Board, October, 2013. (15) Deloitte Luxembourg and Association des Banques et Banquiers, Luxembourg (2012) ‘T2S and regulatory framework are shaping a new post-trade world’ Association des Banques et Banquiers. (16) PwC, ref. 9 above. (17) Clearstream, ‘Shaping the Future’ workshops and PwC, ref. 9 above. Page 131