Gertrude Tumpel-Gugerell: EU priorities for investment funds and EU
securities infrastructures
Speech by Ms Gertrude Tumpel-Gugerell, Member of the Executive Board of the European
Central Bank, at the EUROFI Conference, Nice, 11 September 2008.
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1st part of the Panel on "EU priorities for investment funds":
Question 1: Do you see a way in which the Target 2-Securities platform would impact on the
fund industry?
Answer 1: As we have heard by my panel colleagues, several regulatory initiatives are
undertaken with the aim of creating a single market in financial services, including the current
fund industry.
The fund industry can benefit from new business opportunities which TARGET2-Securities
will provide, as the fund industry will have access to a larger set of European securities, from
deeper and more liquid markets.
This will provide the fund industry with a new diversification perspective for their portfolio at a
better and more transparent price of trading securities within a single European market. The
fund industry will likewise benefit from the cost savings which has been identified as part of
the T2S business case. These benefits will be passed through the wholesale sector - down
the value chain - to the fund industry - all the way through to the retail market for the benefit
of Europe.
Furthermore, as the characteristics and national practices of the European fund industry
remains fragmented, the TARGET2-Securities platform can settle investment funds
shares/units, in markets where these are dematerialised, listed in a CSD and where the
characteristics are closer to those of securities.
Question 2: Will cost savings arise for Asset Managers?
Answer 2: Asset managers, where the trading of investment funds shares/units are settled in
Target 2-Securities, will benefit from the economies of scale and have similar advantages as
other market participants and users of TARGET2-Securities. Furthermore, they will benefit
from streamlining and the reduction of back office costs for cross border post-trading
processing and obtain similar type of saving as found for custodians and banks using T2S -
which are within the range of EUR 50-60 millions of cost savings per year - which shall be
passed through to customers including among others assets managers.
2nd part of the Panel on "EU priorities for EU securities infrastructures:
Ladies and gentlemen,
I would share with you our priorities for securities infrastructures and, if I may, offer some
ideas to stimulate the European debate on new initiatives.
I welcome the various private and public initiatives and feel they need to be supplemented by
securities infrastructure which embodies an integrated approach at the European level. The
infrastructure gap is mainly in the post-trading sector as there seems to be no shortage of
new trading platforms which aspire to operate at the European level.
The Eurosystem operates as a catalyst, facilitator and operator in relation to Europe-wide
infrastructures. It provides a borderless and neutral infrastructure for settlement in central
bank money, via TARGET2. Looking forward, the Eurosystem will provide the next
generation of "Collateral Central Bank Management" (CCBM2). Still more significantly, the
Eurosystem will deliver TARGET2-Securities (T2S) no later than 2013, to make settlement of
securities against central bank money at least as secure, efficient and cheap as domestic
securities settlement are in any European market today.
My understanding is that these projects need to work in harmony with other integration
projects, especially harmonisation. I expect to see significant progress in harmonisation
throughout the securities life cycle, through the catalytic effect of the TARGET2-Securities.
The Eurosystem will initiate work together with market participants to develop action plans for
harmonising both settlement-related processes and processes related to corporate actions.
We expect that market participants will constructively contribute to this work and the key
issue is to ensure that harmonisation solutions are implemented.
The second area which I would like to address relates to the growing importance of cross
border banking operations and the internationalisation of the wholesale market, which
requires changes in the way national supervisory authorities operate. Since systemic risks
extend beyond national borders, we need to strenghten effective co-operation arrangements
among national authorities. The task is complex, and I think the answer requires us to
develop common practices for consistent supervisory structures in financial services,
including common reporting and risk management standards.
The third area relates to the greater interdependencies between trading and post trading
partners. In consequence, the operational processes, risk management policies and
procedures of each system are related to those of other systems. While these
interdependencies between market users and systems generally improve the resilience and
efficiency of markets and their payments and settlement processes, they may also allow
financial disruption to pass,
like a virus, across systems and their participants, with second round effects to other market
activities. I feel that the risks inherent in these growing interdependencies throughout the
European and cross-Atlantic value chain require systems, market users and service
providers to reconsider their approach to risk - to look beyond their own direct operational
exposures and their relationship to directly connected partners.
A holistic and systemic global - or at least European - approach is needed, to the widening
of risk assessment and coordination with other partners along the value chain, so that risk
and crisis management procedures can be optimised.
Fourthly, in a rapidly changing global financial market, innovative products are developed.
These new products may have an impact on the safety and efficiency of the post trading
market and on the stability of financial markets, if their volumes become significant. For
instance, total global OTC derivative contracts have doubled within the last two years to
approximately EUR 10 trillion in (gross) market values (USD 14 trillion - more than the
annual GDP of the euro area1 and similar to the total outstanding amount of debt securities
issued by euro area residents in euro. The credit default swaps market has grown more than
eight times in (gross) market value during the last two years. I suggest that monitoring and
risk management measures needs to be intensified, to closely monitor the dynamics of the
derivative markets and to strengthening the financial infrastructures by improving
arrangements for clearing and settlement of OTC derivatives in order to reduce systematic
risks.
I am confident that we can find the right balance, so that Europe co-operates to harmonise,
monitor and compete to deliver the economic benefits of the single financial market.
Thank you very much.