T2S progress report.
Date: 2012-01-13
Institutions: European Central Bank
Subjects: European Central Bank, economy, financial market

T2S PROGRESS REPORT

INTRODUCTION 

On  8  March  2007,  the  Governing  Council  of 
the  ECB  assessed  the  feasibility  of  TARGET2-
Securities  (T2S)  and  decided  that  the  project 
was  feasible.  Therewith,  it  launched  the  next 
step of the project, i.e. the deﬁ nition of the user 
requirements, and requested that the preparation 
thereof  be  conducted  in  close  cooperation  with 
market  participants.  In  addition,  it  requested 
the  publication  of  a  progress  report  by  October 
2007. On 26 April 2007, the Governing Council 
launched  the  ﬁ rst  public  consultation  on  the 
general  principles  and  the  high-level  proposals 
deﬁ ning  the  nature  and  scope  of  T2S  and 
approved the setting-up of a governance structure 
for  this  phase  of  the  project.  This  marked  the 
start of the user requirements phase.

Section  1  of  this  progress  report  reviews  the 
outcome  of  the  public  consultation  on  the 
T2S  principles  and  proposals.  Section  2  gives 
an  overview  of  the  progress  achieved  in  the 
various  work  streams  and  Section  3  assesses 
the  level  of  support  from  market  participants. 
Section  4  outlines  the  steps  for  ﬁ nalising  the 
user requirements phase. Section 5 concludes. 

1 

OUTCOME OF THE PUBLIC CONSULTATION 
ON THE T2S PRINCIPLES AND PROPOSALS

The Eurosystem conducted a two-month public 
consultation  on  the  “General  principles  and 
high-level proposals for the user requirements” 
and  requested  feedback  by  26  June  2007.  A 
total  of  57  responses  were  received,  slightly 
more  than  half  of  which  came  from  banks 
or  banking  federations.  Central  Securities 
Depositories 
and  other  market 
participants with different afﬁ liations each sent 
about  one-ﬁ fth  of  the  responses.  In  view  of 
the  fact  that  about  40%  of  the  responses  were 

(CSDs) 

sent  by  associations  or  groups  of  users,  the 
actual  number  of  institutions  involved  in  the 
market  consultation  was  signiﬁ cantly  higher 
than  the  number  of  responses  submitted.  This 
large volume of comments has been extremely 
valuable and highlights the success of the public 
consultation. 

1.1  REMARKS ON THE T2S PRINCIPLES

Even though the general principles established 
by  the  Governing  Council  as  a  basis  for 
T2S  were  originally  not  intended  for  public 
comment,  about  15  institutions  or  groups  of 
institutions  provided  constructive  comments 
and  drafting  suggestions  in  order  to  improve 
the  clarity  of  the  principles.  Some  issues  were 
also raised at the level of T2S Technical Groups 
(TGs) with the aim of clarifying the principles.

The  suggestions  received  during  the  public 
consultation, as well as the input from the TGs, 
were discussed by the T2S Advisory Group (AG) 
during its meeting of 31 July – 1 August 2007. 
As the T2S principles are the responsibility of 
the  Governing  Council,  the  AG  was  not  asked 
to  subscribe  to  the  principles  themselves  but 
to  agree  on  the  proposed  clariﬁ cations.  The 
Governing  Council  subsequently  approved 
these clariﬁ cations to generate a clear common 
understanding  as  a  basis  for  the  future  work. 
The  main  clariﬁ cations  involved  the  following 
principles:

Principle  2:  T2S  shall  be  based  on  the 
TARGET2 platform and will hence provide the 
same levels of availability, resilience, recovery 
time and security as TARGET2.

It  was  clariﬁ ed  that  “T2S  on  T2”  should  be 
understood as an open concept and should not 
impose  constraints  on  the  user  requirements. 
The  objective  of  this  set-up  is  to  exploit 

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synergies  and  provide  an  efﬁ cient  solution  for 
CSDs and their users. 

the  unbundling  of  services  and  accounting 
separation.  T2S  will  therefore  enable  CSDs  to 
continue complying with the Code.

All  changes  to  the  principles  are  listed  in 
Annex 1: General principles of T2S.

1.2  COMMENTS ON THE T2S PROPOSALS

The focus of the April 2007 public consultation was 
on the 67 high-level proposals that will provide a 
basis for the drafting of the T2S user requirements. 
As  illustrated  by  the  chart,  the  feedback  from 
the  market  was  very  positive,  with  65%  of  the 
comments  received  expressing  full  agreement 
with the proposals. This suggests that the thrust of 
the project is appropriate. About a quarter of the 
responses either partially or completely disagreed 
with the proposals, necessitating a close review of 
said proposals by the AG. 

Overview of the statements on proposals

Principle  5:  The  T2S  settlement  service  will 
allow  CSDs  to  offer  their  participants  at  least 
the  same  level  of  settlement  functionality  and 
coverage of assets in a harmonised way.

It was made clear that T2S will provide at least 
the  same  level  of  settlement  functionality  as 
today.  There  will  therefore  be  no  reduction  in 
settlement functionality, but T2S may not cover 
all services currently provided by CSDs if said 
services  are  not  core  functionalities  beneﬁ ting 
the entire user community.

Principle  11:  T2S  shall  allow  users  to  have 
direct connectivity to its platform.  

The term “direct access” in the original version 
was  widely  misunderstood.  Instead,  “direct 
connectivity”  was  considered  a  much  clearer 
term  as  it  underlines  the  fact  that  CSDs  will 
retain the business and legal relationships with 
their customers. Direct connectivity shall only 
be  considered  in  the  context  of  the  technical 
interface  that  the  user  will  need  to  maintain, 
whether  it  be  with  the  CSD  or  directly  with 
T2S. The processes for user instructions will be 
identical for both connectivity options. 

I do not agree entirely 
20%

I completely  
disagree

6%

9%
No answer

Principle  16:  All  CSDs  connecting  to  T2S 
shall  have  a  single  calendar  of  opening  days 
and harmonised opening and closing times for 
settlement business.

I agree
65%

It  was  clariﬁ ed  that,  within  the  T2S  calendar, 
a CSD that closes on a national holiday would 
need  to  provide  a  minimum  level  of  service 
to  ensure  continued  provision  of  the  core  T2S 
services.

Principle 19: T2S services shall be compatible 
with  the  principles  of  the  European  Code  of 
Conduct for Clearing and Settlement. 

It was clariﬁ ed that T2S shall be compatible with 
the European Code of Conduct for Clearing and 
Settlement  with  regard  to  price  transparency, 

The  few  critical  comments  that  were  received 
centred around approximately a dozen proposals, 
with many respondents complaining about a lack 
of detail or a lack of deﬁ nition. The ECB’s T2S 
project  team  worked  on  all  the  proposals  and 
presented  a  list  of  suggestions  to  the  AG  at  its 
meeting of 31 July – 1 August 2007 for validation. 
The  AG  agreed  to  about  half  of  the  proposals 
where only minimal changes were made. These 
proposals constitute the guidance for the TGs in 

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drawing  up  the  User  Requirements  Document. 
The other half of the proposals were allocated to 
the relevant TG for further analysis and to  ﬁ nd 
a  way  to  accommodate  the  comments  received 
through the public consultation. Suggestions for 
these  proposals  were  submitted  to  the  AG  for 
its  meeting  on  20-21  September  2007.  By  the 
end of the meeting, the AG had already agreed 
on 65 proposals, with only two remaining open. 
However,  several  proposals  still  need  to  be 
reviewed with respect to direct holding countries 
because of their speciﬁ c requirements.

Within 
the  most 
the  AG,  agreement  on 
controversial proposals was reached as follows:

■ 

■ 

the  public  consultation  revealed  a  strong 
preference of the market to settle the cash leg 
of  T2S  settlements  on  T2S  dedicated  cash 
accounts. The option of settling on the general 
TARGET2 RTGS account was discarded. An 
overview  of  the  euro  liquidity  available  in 
the  TARGET2  RTGS  account  and  the  T2S 
dedicated cash accounts will be provided;

the  T2S  interface  shall  be  based  solely  on 
the  technical  standard  ISO  20022.  This 
standard  will  be  released  in  2010  and  will 
be  the  single  future  standard  in  this  area. 
Since the launch of T2S is planned for 2013, 
adoption  of  the  future  standard  will  avoid 
double development and migration costs;

■  harmonisation and standardisation decisions 
in the T2S set-up shall be guided primarily 
by  the  principle  of  maximising  efﬁ ciency. 
Minimising  the  overall  market  impact  was 
deemed to be of secondary importance. The 
principle  of  the  equal  footing  of  these  two 
principles  was  discarded  to  accommodate 
the  strong  preference  of  the  market  to 
improve efﬁ ciency.

The  two  proposals  that  have  remained  open 
concerned  night-time  settlement  and  central 
matching in T2S: 

■  with  a  view  to  harmonising  settlement 
large  majority  of  market 

practices,  a 

participants  were  in  favour  of  mandatory 
settlement  during  the  night.  This  view 
was  also  shared  by  the  majority  of  the  AG 
members.  Countries  that  currently  do  not 
settle  during  the  night  requested  further 
clariﬁ cation  and  were  still  analysing  the 
costs  and  beneﬁ ts  of  night-time  settlement. 
The AG will have taken a ﬁ nal view on the 
issue at its October 2007 meeting;

■ 

the majority of market participants asked for 
a central matching of settlement instructions 
within T2S as this was considered the most 
efﬁ cient  option.  It  was  proposed  that  a 
central  matching  facility  be  located  within 
T2S. In parallel, CSDs have expressed their 
intention to present an alternative matching 
model to the AG. The AG will have taken a 
ﬁ nal  view  on  the  issue  at  its  October  2007 
meeting. 

2 

PROGRESS IN THE DIFFERENT T2S WORK 
STREAMS

2.1  DEFINITION OF THE USER 

REQUIREMENTS

On  26  April  2007,  the  Governing  Council  of 
the  ECB  decided  on  the  organisation  of  the 
ﬁ rst  phase  of  the  T2S  project.  This  decision 
encompassed  the  governance  structure  for  the 
user requirements phase (see Section 2.4 below). 
It also assigned the preparation of the T2S user 
requirements  to  the  AG  which  divided  up  the 
work  between  six  different  TGs,  each  one  of 
them tackling one speciﬁ c area of the project. In 
addition,  the  national  communities  established 
a total of 18 National User Groups (one in each 
euro  area  country,  as  well  as  in  Denmark, 
Sweden, the United Kingdom, Switzerland and 
Norway) to provide input into consultations on 
technical issues raised by the TGs.

The AG and all the TGs started the preparatory 
work  in  early  summer  2007  and  have  been 
working  very  hard  since  then.  The  TGs  have 
conducted a total of seven “mini-consultations” 
in  which  the  TGs  asked  for  feedback  from 

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the  National  User  Groups  and  from  European 
associations  in  order  to  draw  from  the  wealth 
of experience in the various markets, as well as 
to become aware of the needs and practices of 
the various markets. Other ad-hoc consultations 
have  also  been  conducted.  The  T2S  project 
team  shared  the  latest  developments  with  a 
wider  audience,  not  represented  in  the  AG, 
during  an  information  session  in  June  and 
in  August  2007.  In  this  context,  it  should  be 
mentioned that the high degree of transparency 
regarding T2S is very much appreciated by the 
market. All documents discussed by the AG, all 
mini-consultations  and  most  of  the  documents 
submitted to the TGs are publicly available on 
the ECB’s website.

The rapid pace of the work had been a cause for 
concern among several market participants who 
were worried that the quality of the work would 
suffer  due  to  the  short  window  of  opportunity 
for  commenting  on  T2S-related  documents, 
particularly during the summer vacation period 
when  many  of  the  market  experts  were  not 
available.  The  AG  addressed  this  issue  at  its 
meeting of 31 July – 1 August 2007 and it was 
agreed  that  the  planned  three-week  window 
for  mini-consultations  would  be  extended  by 
an  average  of  two  weeks  during  the  summer 
period. This extension of deadlines was greatly 
appreciated by the market.

The mini-consultations were ﬁ nalised by the end 
of September 2007 and the preparation of the user 
requirements is currently progressing according 
to  the  deﬁ ned  master  plan  for  the  project 
(see Section 3). 

2.2  ECONOMIC IMPACT ANALYSIS FOR T2S

The  decision  of  the  Governing  Council  of 
8  March  2007  on  the  feasibility  of  the  T2S 
project  was  based,  inter  alia,  on  the  economic 
feasibility  of  the  project  (see  the  document 
entitled  “TARGET2-Securities  –  Economic 
Feasibility”).  In  this  context,  the  estimated 
one-off  costs  of 
this  project  were  €200 
million,  compared  with  beneﬁ ts  in  excess 
of  €225  million  per  year  for  the  ﬁ nancial 

industry. In addition, an analysis of the impact 
on CSDs, intermediaries, issuers, investors and 
the  market  was  carried  out,  which  conﬁ rmed 
the  macroeconomic  beneﬁ ts  for  the  market 
in  general.  Market  participants,  and  CSDs  in 
particular, asked for this analysis to be reﬁ ned 
and complemented by a microeconomic analysis. 
The  Eurosystem  responded  positively  to  this 
request  and  prepared  a  general  methodology 
for  the  calculation  and  quantiﬁ cation  of  the 
economic effects of T2S. An initial discussion 
on this methodology took place at the October 
2007 meeting of the AG.

2.3  LEGAL PREPARATIONS

the  decision  of 

the  Governing 
Following 
Council  to  proceed  with  the  next  phase  of  the 
T2S  project,  various  legal  work  streams  need 
to  be  accomplished  during  the  current  user 
requirements phase.

The  legal  work  is  conducted  by  the  DG  Legal 
Services  of  the  ECB,  in  coordination  with  the 
T2S  project  team  and,  where  necessary,  with 
the  Legal  Committee  of  the  ESCB  (LEGCO). 
It  is  based  on  the  parameters  set  out  by  the 
Governing Council of the ECB in its decisions 
of  8  March  and  26  April  2007  and  takes  into 
account  the  legal  feasibility  report  of  March 
2007, as well as the ongoing activities of the AG 
and the six TGs entrusted with the elaboration 
of the draft user requirements.

As  a  general  point,  it  is  important  to  stress 
that the scope and substance of the legal work 
streams  are  dependent  both  on  decisions  that 
still need to be taken at the policy level (e.g. the 
degree  of  commitment  expected  in  relation  to 
CSDs’  participation  in  the  T2S  development 
phase)  and  on  the  further  speciﬁ cation  of  the 
technical details of T2S. 

focused 

At  this  stage  of  the  project,  the  legal  work 
largely  on  preparatory  work 
is 
and  stocktaking  in  relation  to  the  legal  and 
regulatory  environment  under  which  T2S  is 
expected to operate, in particular by identifying 
any  major  legal  obstacles  to  the  T2S  set-up. 

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Throughout  the  third  quarter  of  2007,  an 
extensive  and  comprehensive 
stocktaking 
exercise, involving the DG Legal Services of the 
ECB and LEGCO, was undertaken. With regard 
to  substantive  EU  and  national  legislation  that 
could have a bearing on the legal feasibility of 
T2S, a full legal assessment is being undertaken 
with  a  view  to  identifying  any  obstacles  and 
adapting  the  T2S  legal  framework,  as  well  as 
to making proposals for legislative amendments 
or  further  harmonisation  efforts,  if  necessary. 
Topics  requiring  special  attention,  such  as  the 
legal aspects of direct holding systems, will be 
discussed in dedicated meetings in the Member 
States  concerned.  A  further  component  of  the 
analytical  legal  work  concerns  the  various 
regulatory  requirements  at  the  national  and 
the  EU  level  that  are  of  relevance  to  T2S, 
including  settlement  procedures,  data  storage 
requirements, 
the  regime  for  outsourcing, 
reporting requirements (e.g. money laundering) 
and auditing requirements.

Another important part of the legal work involves 
the  provision  of  ongoing  legal  support  and 
advice to the TGs and the T2S project team on 
issues that arise from the technical discussions. 
Finally, the T2S legal team was closely involved 
in the development of the governance structure 
for the current user requirements phase, which 
covers the rules of procedure for the AG and the 
other bodies involved in the current governance 
structure, for example).

At  this  stage,  no  major  legal  obstacles  have 
been  identiﬁ ed  that  might  compromise  the 
T2S  project.  In  a  few  jurisdictions,  secondary 
settlement  regulations  might  need  to  adapted, 
depending on the exact features of T2S.

2.4  POSSIBLE FUTURE GOVERNANCE OF T2S

The  current  organisation  of  the  T2S  project 
was  chosen  to  ensure  a  wide  representation  of 
stakeholders,  as  well  as  in  order  to  be  able  to 
take account of a large variety of views and to 
generate more support for the project. However, 
it emerged during the ﬁ rst three meetings of the 
AG  that  this  set-up  will  be  difﬁ cult  to  sustain 

in  the  future1.  The  number  of  participants  in 
the AG has grown to 68 and more applications, 
which  are  sometimes  difﬁ cult 
to  refuse, 
have  been  received.  With  Malta  and  Cyprus 
adopting  the  euro  as  their  national  currency 
on 1 January 2008, the number of participants 
in  the  AG  will  exceed  70.  Although  the  large 
number  of  participants  has  not  prevented 
fruitful  exchanges  of  views  during  meetings, 
it  has  generated  genuine  organisational 
problems.  There  is  therefore  a  strong  business 
case  for  signiﬁ cantly  reducing  the  number  of 
participants in the body that will take over from 
the AG in the next phase.

The  AG  and  the  Payments  and  Securities 
Settlement  Committee  (PSSC)  both  started 
to  discuss  the  future  governance  of  T2S  in 
September  2007.  To  begin  with,  the  two 
bodies  took  stock  of  the  present  governance 
arrangement and tried to identify the objectives 
of  the  various  stakeholders  for  the  next  phase. 
The further debate will be based on the general 
framework  that  was  deﬁ ned  by  the  Governing 
Council  of  the  ECB  in  March  and  April  2007 
and  will  consider  the  expectations  of  public 
institutions, such as the EU Council of Ministers 
of  Economic  Affairs  and  Finance  (ECOFIN), 
the  European  Commission  and  the  European 
Parliament.  It  is  planned  to  submit  a  proposal 
for the T2S governance of the next phase to the 
Governing Council in early 2008. 

3 

FINALISATION OF THE USER REQUIREMENTS 
PHASE

to 

their  contributions 

The  TGs  are  currently  in  the  process  of 
ﬁ nalising 
the  User 
Requirements  Document.  These  contributions 
will  be  consolidated  by  the  T2S  project  team. 
An  initial  discussion  of  parts  of  the  User 
Requirements Document took place during the 
AG  meeting  of  23-24  October  2007  and  ﬁ nal 
approval is to be given during the AG meeting 
of 28-29 November 2007. Once the agreements 
of  this  meeting  have  been  incorporated  into 

1  The  Rules  of  Procedure  for  the  Advisory  Group  are  attached 

for information (see Annex 2). 

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5 

CONCLUSION 

The preparatory work for the delivery of the T2S 
user requirements is progressing very rapidly in 
all areas and according to the anticipated project 
plan.  The  Eurosystem  has  received  valuable 
input from the public consultation on the general 
principles  and  high-level  proposals,  which  is 
being  taken  into  account  in  the  deﬁ nition  of 
the  draft  user  requirements.  Despite  the  high 
speed  of  the  work  and  the  strong  commitment 
of  most  of  the  parties  involved,  the  CSDs  still 
have  certain  reservations  about  supporting 
the  project.  The  Eurosystem  has  launched  an 
initiative to analyse the conditions required for 
the  market  participants  to  grant  the  necessary 
level  of  commitment  in  order  to  be  able  to 
proceed with the project. Besides the economic 
beneﬁ ts,  the  CSDs’  future  involvement  in 
the  T2S  governance  may  be  a  factor  that  will 
inﬂ uence their level of support.

the  draft  User  Requirements  Document,  it  is 
anticipated  that  it  will  be  submitted  by  the 
AG  to  the  ECB’s  decision-making  bodies 
immediately thereafter. The Governing Council 
of  the  ECB  will  be  invited  to  release  the  User 
Requirements  Document  for  a  three-month 
public consultation period starting in December 
2007/January 2008. Depending on the outcome 
of  this  consultation,  the  User  Requirements 
Document  should  be  ﬁ nalised  by  the  AG  in 
spring 2008.2

4 

SUPPORT FOR T2S IN THE MARKET

The general situation with regard to support for 
T2S has changed little since the project work has 
intensiﬁ ed. Most banks and custodians strongly 
support  the  project  in  view  of  the  savings  that 
they  expect  to  realise  through  improving  their 
access  to  foreign  markets  and  streamlining 
their back-ofﬁ ce processes. CSDs remain more 
cautious,  although  most  of  them  continue  to 
provide constructive feedback.

The  Eurosystem  is  in  permanent  discussions 
with  the  market  and  will  focus  in  the  coming 
weeks on the following issues in particular:

- 

- 

the extent to which the efﬁ cient use of T2S 
functionalities will allow CSDs to downsize 
their  present  settlement  infrastructure  and 
reduce costs;

the  extent  to  which  users  and  CSDs  will 
provide  their  assessment  of  the  project  
before  the  Governing  Council  of  the  ECB 
decides  to  enter  into  the  next  phase  of  the 
project.

2 

It  should  be  noted  that  the  T2S  planning  is  synchronised 
with  the  CCBM2  project  plan  for  the  ﬁ nalisation  of  the  user 
requirements  phase,  in  compliance  with  the  Governing 
Council’s request for work on both projects to be conducted in 
parallel (see also the press release dated 8 March 2007).

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GENER AL PRINCIPLES OF 
TARGET2-SECURITIES

The  general  principles  constitute  the  main 
cornerstones  of  TARGET2-Securities  (T2S). 
They  were  approved  and  published  by  the 
Governing  Council  of  the  ECB  on  26  April 
2007.  Comments  received  on  the  principles 
sometimes  suggested  a  need  for  clariﬁ cation. 
Revisions affected the supplementary text on the 
principle, affecting the headline principle only 
in rare cases. While not being asked to endorse 
the principles, the Advisory Group agreed in its 
meeting of 31 July – 1 August 2007 to suggest 
the following clariﬁ cations of the principles to 
the Governing Council. The Governing Council 
has  agreed  to  the  clariﬁ cations  suggested  by 
the Advisory Group. This is therefore the ﬁ nal 
version of the T2S general principles.

Principle 1: The Eurosystem shall take on the 
responsibility  of  developing  and  operating 
T2S by assuming full ownership

In  line  with  the  Governing  Council’s  decision 
of  July  2006,  the  proposed  platform  will  be 
fully  owned  and  operated  by  the  Eurosystem. 
For  the  deﬁ nition  of  the  user  requirements,  a 
governance structure has been set up that allows 
for  a  wide  involvement  of  market  participants. 
The  Eurosystem  is  committed  to  continue 
keeping market participants closely involved in 
the different phases of the project.

Principle  2:  T2S  shall  be  based  on  the 
TARGET2  platform  and  will  hence  provide 
the  same  levels  of  availability,  resilience, 
recovery time and security as TARGET2

The  Governing  Council  decided  that  T2S  will 
be  developed  and  operated  on  the  TARGET2 
platform.  Four  Eurosystem  central  banks  (the 
Deutsche  Bundesbank,  the  Banco  de  España, 
the  Banque  de  France  and  the  Banca  d’Italia, 
otherwise  known  as  the  3CB+)  are  ready  to 
develop  and  operate  T2S  on  TARGET2  via 

the  Single  Shared  Platform.  Use  will  be  made 
of  the  valuable  experience  and  knowledge 
that  is  available  in  the  market.  The  intention 
is  to  exploit  synergies  and  provide  an  efﬁ cient 
solution 
to  central  securities  depositories 
(CSDs)  and  users.  In  addition,  enhanced 
liquidity  management  mechanisms  will  be 
provided  as  a  result  of  the  proximity  between 
T2S and T2. The existing operational structures 
and  support  organisation,  telecommunications 
infrastructure, business continuity and disaster 
recovery  arrangements  shall  be  reused  to  the 
maximum extent possible.

“T2S  on  T2”  must  be  understood  as  an  open 
concept that will not impose constraints on the 
user requirements. 

Principle 3: T2S shall not involve the setting-
up  and  operation  of  a  CSD,  but  instead 
will  serve  only  as  a  technical  platform  for 
providing settlement services to CSDs

T2S is purely an IT settlement service operated 
by the Eurosystem and provided to CSDs for the 
beneﬁ t  of  their  customers.  It  therefore  neither 
constitutes a CSD in itself, nor is it planned that 
T2S will become one in the future. The scope 
of  T2S  is  restricted  to  settlement,  including 
settlement instructions resulting from corporate 
actions  or  portfolio  transfer,  for  example. 
This  therefore  excludes  the  possibility  of  T2S 
engaging in any asset-servicing businesses (such 
as  event  set-up,  computation  of  beneﬁ ts  and 
response management of corporate actions).

Principle  4:  The  respective  CSD  users’ 
securities  accounts  shall  remain 
legally 
attributed to each CSD

Each CSD will continue to be legally responsible 
(under  their  applicable  laws)  for  opening, 
maintaining and closing the securities accounts 

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October 2007

7

of its users in T2S and, where relevant, those of 
the clients of these users as well. The securities 
account balances will be stored within the T2S 
platform and will be available to CSDs and their 
users on a real-time basis.

Principle 5: The T2S settlement service will 
allow CSDs to offer their participants at least 
the same level of settlement functionality and 
coverage of assets in a harmonised way

The  aim  of  the  development  of  a  common 
settlement platform is to enable CSDs to use T2S 
to  perform  their  entire  settlement  processing 
in  a  harmonised  way.  The  centralised  platform 
should  cover  the  full  functionality  needed  for 
such  a  harmonised  service  and  should  enable 
an enhanced management of liquidity. If this is 
not  achieved,  CSDs  will  be  forced  to  maintain 
duplicate settlement infrastructures, with a cost 
impact  through  both  duplication  and  reduced 
economies  of  scale.  The  objective  of  T2S  is  to 
provide a level of functionality that frees CSDs 
from  maintaining  securities  balances  on  a 
separate platform or from duplicating processes.

The scope of eligible instruments in T2S shall 
comprise all securities that have an International 
Securities  Identifying  Number  (ISIN)  and  are 
held by a CSD operating in T2S.

Principle 6: Securities account balances shall 
only be changed in T2S

T2S will process all changes on securities account 
balances  that  relate  to  settlement  activities  of 
CSDs on the basis of the instructions it receives. 
Examples  of  this  are  settlement  instructions 
generated  via  primary  and  secondary  market 
transactions, corporate actions, and lending and 
collateral management activities. 

Principle  7:  T2S  shall  require  participating 
CSDs to be designated under the Settlement 
Finality  Directive  (SFD)  in  their  respective 
jurisdiction

Participating  CSDs  will  have  to  be  designated 
as securities settlement systems under the SFD 

and notiﬁ ed by the competent national authority 
to the European Commission in order to beneﬁ t 
from  protection  under  the  SFD.  Consequently, 
transfer  orders  processed  in  T2S  will  acquire 
adequate protection under the relevant laws and 
rules of the individual CSDs that are designated 
under  the  SFD.  Furthermore,  the  proprietary 
aspects and the ﬁ nality of transfers of securities 
will be determined in accordance with the laws 
of the country in which the CSD that has opened 
the securities accounts is located.

Principle  8:  T2S  shall  settle  exclusively  in 
central bank money

As stated above, T2S is a service for enhancing 
the  efﬁ ciency  of  securities  settlement  across 
Europe while at the same time keeping central 
banks’  cash  account  management  within  the 
central  banks.  Its  scope  is  therefore  limited 
exclusively to central bank money and does not 
extend  to  the  settlement  of  commercial  bank 
money. 

Principle 9: The primary focus of T2S shall 
be settlement services in euro

The  primary  focus  of  the  Eurosystem  is  to 
ensure efﬁ cient and sound settlement services in 
euro. As a result, the focus of T2S is to provide 
settlement services in euro central bank money. 
The  extension  of  T2S  to  other  currencies  is 
possible (see Principle 10). 

Principle 10: T2S shall be technically capable 
of settling currencies other than the euro

T2S  will  be  technically  capable  of  providing 
settlement not only in euro central bank money 
but also in non-euro central bank money. For the 
activation of this service, the explicit request by 
the relevant non-Eurosystem central bank(s) in 
coordination with the local market community 
is  required.  Non-Eurosystem  central  banks 
would  be  expected  to  adapt  to  a  harmonised 
standardised interface.  

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Principle  11:  T2S  shall  allow  users  to  have 
direct connectivity to its platform

pricing  basis  (in  a  similar  manner  as  for  other 
existing  Eurosystem  infrastructures,  such  as 
TARGET2). 

the  business  and 
legal 
CSDs  will  retain 
their  participants.  All 
relationship  with 
securities  account  balances  will  be  stored  in 
T2S, irrespective of the choice of connectivity. 
From  a  T2S  point  of  view,  the  connectivity 
choice  refers  solely  to  the  way  in  which  users 
will  interface  with  T2S  in  order  to  send  and 
maintain  settlement  instructions,  as  well  as 
to  access  reporting  facilities.  Irrespective  of 
the  way  in  which  they  connect  to  T2S,  users’ 
instructions  will  be  subject  to  equal  processes 
within  T2S.  The  connectivity  choice  will  also 
be  neutral  to  CSDs,  since  all  the  necessary 
information,  even  from  directly  connected 
users, will be available to CSDs.

Principle  12:  CSDs’  participation  in  T2S 
shall not be mandatory

CSDs’  participation  in  T2S  is  a  business 
decision on the part of the CSDs and their local 
market community. When deciding whether or 
not  to  join  T2S,  CSDs  are  expected  to  follow 
the interests of their shareholders and users. 

Principle 13: All CSDs settling in euro central 
bank money shall be eligible to participate in 
T2S

All  CSDs  settling  in  euro  central  bank  money 
and  designated  under  the  SFD  are  invited  to 
join  T2S,  regardless  of  their  location  inside  or 
outside the euro area. 

Principle  14:  All  CSDs  connecting  to  T2S 
shall have equal access conditions

The  criteria  for  CSDs  to  access  T2S  will  be 
public and non-discriminatory. All participating 
CSDs  will  have  access  to  all  T2S  services.  A 
single,  transparent  and  publicly  available  fee 
schedule will be applied (see also Principle 19 
on  compliance  with  the  Code  of  Conduct).  In 
line  with  European  principles  of  competition, 
the  Eurosystem  will  provide  its  services  to 
connected  CSDs  on  a  non-discriminatory 

Principle  15:  All  CSDs  connecting  to  T2S 
shall  do  so  under  a  harmonised  contractual 
arrangement

With reference to their contractual relationship 
with T2S, all CSDs receiving the same service 
level will be subject to a harmonised contractual 
arrangement. This means that all CSDs willing 
to  participate  in  T2S  will  adhere  to  the  same 
harmonised  conditions  for  the  platform’s  core 
functions. If speciﬁ c optional services were to 
be  provided  to  a  CSD,  they  would  need  to  be 
covered by a speciﬁ c contractual arrangement. 
Any  other  CSD  willing  to  use  such  speciﬁ c 
services  would  also  be  eligible  to  apply  under 
the same harmonised conditions for the speciﬁ c 
optional services.

Principle  16:  All  CSDs  connecting  to  T2S 
shall have a single calendar of opening days 
and  harmonised  opening  and  closing  times 
for settlement business

The  participating  CSDs  shall  adopt  the  T2S 
calendar. This will be the same as the TARGET2 
calendar.  Settlement  (delivery  versus  payment 
(DvP)  as  well  as  free  of  payment  (FoP))  via 
T2S shall not be possible outside this calendar. 
Within  the  T2S  calendar,  a  CSD  which  closes 
due to a national holiday would need to provide 
a  minimum  level  of  service  (e.g.  to  allow  the 
realignment  of  settlement  carried  out  in  other 
CSDs).

The  opening  and  closing  times  will  cover 
daytime  and  night-time  settlement.  They 
will  be  compatible  with,  though  perhaps  not 
identical to, TARGET2 operating hours. Further 
consultation  will  be  conducted  on  the  exact 
cut-off  times  within  the  single  T2S  operating 
timetable  –  different  cut-off  thresholds  might 
for instance be required for speciﬁ c operations 
(DvP notiﬁ cation submission, automatic lending 
operations, etc.).

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Principle  17:  T2S  settlement  rules  and 
procedures 
to  all 
participating CSDs

shall  be 

common 

To minimise costs and simplify processes, T2S 
will aim to harmonise all rules and procedures 
related to the services it provides.

For  example,  T2S  will  provide  a  single  set  of 
harmonised  matching  rules  and  procedures 
which must be observed by instructing parties. 
These  will  be  based  on  the  European  Central 
Securities  Depositories  Association  (ECSDA) 
report  on  matching  standards.  In  addition  to 
these  harmonised  rules,  CSDs  may  maintain 
additional  domestic  rules,  provided  that  such 
rules do not conﬂ ict with those of T2S. 

Principle 18: T2S shall operate on a full cost-
recovery and not-for-proﬁ t basis

The  Eurosystem  will  price  the  development 
and  operation  of  T2S  on  a  full  cost  recovery 
and  not-for-proﬁ t  basis.  While  delivering  a 
very  high  level  of  service  in  terms  of  quality, 
security and availability, T2S will also seek to 
be as cost-efﬁ cient as possible.

Principle 19: T2S services shall be compatible 
with the principles of the European Code of 
Conduct for Clearing and Settlement

T2S  will  be  compatible  with  the  principles  of 
the European Code of Conduct for Clearing and 
Settlement  with  regard  to  price  transparency, 
the  unbundling  of  services  and  accounting 
separation. By being compatible with the Code 
of Conduct, it will enable CSDs to continue to 
comply with it too.

Principle 20: T2S shall support the participating 
CSDs in complying with oversight, regulatory 
and supervisory requirements

© European Central Bank, 2007

Address
Kaiserstrasse 29
60311 Frankfurt am Main 
Germany

Postal address
Postfach 16 03 19
60066 Frankfurt am Main 
Germany

Telephone 
+49 69 1344 0

Website
http://www.ecb.europa.eu

Fax 
+49 69 1344 6000

Telex
411 144 ecb d

The  setting-up  of  T2S  will  aim  to  allow 
the  participating  CSDs  to  comply  with  the 
relevant  regulatory,  supervisory  and  oversight 
requirements, as well as to strive for a high degree 
of harmonisation in meeting those requirements.

All  rights  reserved.  Reproduction  for 
educational and non-commercial purposes 
is  permitted  provided  that  the  source  is 
acknowledged.

ISSN 1830-8783 (online)

ECB
T2S Progress Report
October 2007

10

1

ANNEX II 

ADVISORY GROUP 

Rules of Procedure 

In  its  meeting  of  26  April  2007,  the  Governing  Council  of  the  ECB  decided  on  the 
governance arrangements for the user requirements phase of the TARGET2-Securities 
(T2S) project, which started on 1 May 2007 and is expected to end on 30 April 2008. 
The  Advisory  Group  (AG)  forms  part  of  these  governance  arrangements.  In  the 
following, the Rules of Procedure of the AG are set out in detail on the basis of the 
Governing Council decision. 

1.  Mandate and competences: 

1.1.  Pursuant to the Governing Council decision, the AG shall be established for the 

duration of the T2S user requirements phase.  

1.2. The AG shall have the following mandate:   

i. 

ii. 

delivery  of  the  first  draft  of  the  user  requirements  to  the  Governing 
Council by 30 November 2007 at the latest; 

summary  of  the  comments  made  during  the  public  consultation  and 
submission of the final user requirements by 30 April 2008 at the latest; 

iii.  provision  of  guidance  to  the  Technical  Groups  (TGs)  in  line  with  the 

general guidance of the Governing Council; 

iv.  designation of TGs’ chairpersons; 

v. 

the  requesting  of  guidance  from  the  Governing  Council  at  any  point  in 
time during the user requirements phase; 

vi.  provision  of  assistance  to  the  Eurosystem  when  reviewing  the  economic 

impact assessment of the T2S project; 

11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
vii.  amendment of the list of the TGs and/or modification of their mandate(s);  
viii.  adoption of the Rules of Procedure of the AG and the Rules of Procedure 

of the TGs.  

2.  Composition: 

2.1. The AG shall be composed of the Chairperson, the Secretary, full members and 

observers. 

2.2.  Whenever  deemed  appropriate,  the  Chairperson  may  at  his/her  discretion  invite 
additional experts to meetings of the AG on an ad hoc basis and shall inform the 
AG thereof. 

3.  Full members:  

3.1. Full members are entitled to take part in decisions taken by the AG. 

3.2. Initially, the number of full members shall be 42 persons. Each group eligible for 
full  membership  pursuant  to  Article  3.3.  shall  be  allotted  the  same  number  of 
members. Upon adoption of the euro by one or more Member State(s), the number 
of members in each group shall be increased accordingly. 

3.3. A  representative  of  any  of  the  following  groups  shall  be  eligible  to  be  a  full 

member of the AG: 

i. 

Central banks 
The ECB and each national central bank (NCB) of the euro area shall be 
represented  by  a  full  member.  Upon  adoption  of  the  euro  by  a  Member 
State, the respective NCB shall also participate as a full member in the AG 
as of the date of entry into the euro area.  

ii.  Central Securities Depositories (CSDs) 

Each NCB of the euro area may designate one CSD, provided that such a 
CSD  settles  all  or  part  of  its  transactions  in  euro  and  represents  that  it 
envisages  the  possibility  of  joining  T2S  in  due  time.  The  Nomination 
Committee (NC) shall complement the CSD representation on the basis of 
applications received by the Secretariat.  

iii.  Users 

The  NC  shall  select  members  from  the  user  community  on  the  basis  of 
applications received by the Secretariat pursuant to a predefined key:  

- 

two full members shall represent banks in the euro area which mainly 
use the securities settlement industry to serve their local customers;  

-  one full member shall represent a central counterparty; 
- 

the  other  full  members  shall  represent  major  banks  active  in  the 
securities business in euro, irrespective of their place of incorporation.  

12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.  Observers: 

4.1. Observers shall be entitled to participate in the meetings of the AG, but shall not 

participate in its decision-making process. 

4.2. Representatives  of  the  following  groups  shall  be  eligible  to  be  observers  of  the 

AG: 

i.  Central banks 

-  NCB of a country in which the euro has not yet become legal tender but 

whose application to adopt the euro has been accepted; 

-  NCB located outside the euro area, provided that at least one CSD from 
the country concerned participates as a full member or an observer of the 
AG; 

-  one  joint  representative  for  the  central  banks  that  are  ready  to  develop 

and operate T2S (3CB+).  

ii.  CSDs 

-  CSD which is operated by an NCB; 
-  any other CSD of a euro area or non-euro area country that is not a full 
member, on the condition that it settles all or part of its transactions in 
euro and that it represents that it envisages the possibility of joining T2S 
in due time;  

A CSD eligible for observer status shall inform the Secretary about its wish 
to participate in the AG. 

iii.  Users  

-  each  of  the  three  European  Credit  Sector  Associations  (EACB,  EBF, 

ESBG); 

-  Federation of European Securities Exchanges; 
-  European Association of Clearing Houses (EACH) (two observers). 

iv.  Public authorities 

-  public authorities that have a vital interest in T2S and can contribute to 
the  work  of  the  AG.  This  group  comprises  the  European  Commission 
and the Committee of European Securities Regulators. 

v.  Chairpersons of the TGs 

-  Each chairperson of a TG who is not member of the AG. 

5.  Nomination procedures: 

5.1. The following nomination procedures shall apply for full members and 

observers: 

i.  A central bank representative shall be nominated by the Governor/President 
of the central bank concerned pursuant to the applicable central bank statute.  

13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
ii.  The observer representing the 3CB+ shall be nominated by consensus of the 

four central banks concerned.  

iii.  A CSD representative shall be nominated by the head of the CSD concerned. 

iv.  A user representative shall be nominated by the respective organisations on 
the basis of applications ad personam. They shall be designated by the NC in 
line with the applicable NC procedures and criteria. 

v.  Public  authority  representatives  shall  be  nominated  by  the  respective 
organisations  on  the  basis  of  applications  ad  personam.  Public  authority 
representatives  can  only  be  nominated  as  observers.  They  shall  be 
designated by the NC upon the proposal of the Chairperson of the NC.  

5.2. Each  nominee  shall  have  the  appropriate  level  of  seniority  and  the  relevant 

technical expertise.  

5.3. Any nomination shall be confirmed in writing to the Secretary. 

6.  Participation: 

6.1.  Full  members  and  observers  in  the  AG  shall  participate  in  the  AG  strictly  on  a 

personal basis.  

6.2. A full member shall be entitled to designate an alternate (with an equivalent level 
of seniority and expertise) who shall, in exceptional circumstances, attend the AG 
in case of absence of the former and may express views or vote on his/her behalf 
by  way  of  a  proxy  note.  The  full  member  concerned  shall  inform  the  Secretary 
thereof sufficiently in advance. 

6.3. Whenever a full member or observer has left the entity he/she represents, his/her 

membership shall cease with immediate effect.  

6.4. The chairperson of the AG shall request the responsible nominating organisation 
or the NC, as the case may be, to designate a substitute member each time a full 
member or an observer resigns or his/her membership ceases, in accordance with 
the applicable nomination procedure set out in Article 5.  

7.  Chairperson: 

7.1. The Chairperson shall be a senior manager of the ECB and shall be appointed by 
the Governing Council. The Chairperson shall be entitled to designate an alternate 
to replace him/her in exceptional circumstances. 

7.2. The Chairperson shall be responsible for organising the meetings of the AG and 
chairs  those  meetings.  In  this  function,  he/she  shall  decide  on  the  agenda  of  the 
meetings,  taking  into  account  contributions  from  the  Coordination  Group  (CG) 
and members of the AG, and shall decide on the documents to be sent to the AG. 

14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The  Chairperson  shall  present  a  proposal  to  the  AG  if  an  amendment  to  the 
mandate(s) or to the list of TGs is proposed by the CG. 

7.3.  The  Chairperson  shall  decide  whether  a  subject  belongs  to  the  field  of 
competence of the AG and shall inform the AG accordingly if he/she decides that 
a matter does not fall within its field of competence.  

7.4.  The  Chairperson  shall  perform  all  functions  as  provided  for  in  the  Governing 
Council decision (such as the ex officio chairing of the CG), as well as all other 
functions subsequently delegated to him/her by the AG.  

7.5. The Chairperson shall be the only person to represent the AG externally. The AG 
shall  be  informed  in  an  appropriate  manner  prior  to  any  relevant  external 
representations undertaken by the Chairperson on behalf of the AG. Any external 
communication of the AG shall be brought to the attention of the AG sufficiently 
in advance.  

8.  Secretariat: 

8.1.  The  Secretary  of  the  AG  shall  be  a  highly  experienced  ECB  staff  member  and 
shall be appointed by the Chairperson of the AG. The Chairperson of the AG may 
designate an alternate to replace the Secretary in exceptional circumstances.  

8.2. The Secretary shall be provided with secretarial support by the ECB.  

8.3. The Secretary will work under the guidance of the Chairperson. The Secretary’s 

task shall involve in particular: 

i.  assisting the Chairperson in his/her duties; 
ii.  organising meetings and preparing the minutes of the meetings;  
iii.  assisting in the drafting of documents adopted by the AG; 
iv.  acting as coordinator for consultations; 
v.  organising external communication in relation to the work of the AG and the 

other groups (such as the publication of AG documents); 

vi.  executing  all  other  functions  assigned  to  him/her  by  these  Rules  of 

Procedure or the AG or the Chairperson, as the case may be.  

8.4. The Secretary shall be an ex officio member of the CG. 

8.5. The Secretary shall not be entitled to take part in the decisions of the AG. 

9.  Working procedures: 

9.1.  As  a  rule,  the  AG  shall  meet  every  two  months.  Additional  meetings  may  be 
called by the Chairperson, the dates of which will be communicated sufficiently in 
advance to the AG. In principle, meetings shall take place at the premises of the 
ECB.  

15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9.2. The working language shall be English.  

9.3. Brief conclusions on the main outcome of an AG meeting shall be provided by 
the Secretary and circulated to the members of the AG on the working day after 
the meeting. The members of the AG will provide comments within one working 
day  and  the  revised  conclusions  shall  be  published  on  the  ECB’s  website 
thereafter. The summary of an AG meeting shall be drafted by the Secretary and 
circulated  to  the  members  of  the  AG  within  five  working  days  of  the  meeting. 
Comments on the draft summary shall be received within five working days. The 
final  summary  shall  be  published  once  it  has  been  approved  by  the  AG.  The 
summary  shall  indicate  the  topics  that  were  under  consideration,  as  well  as  the 
results of the discussions. 

9.4. The AG shall work in an open and transparent manner.  

The agenda of a meeting and the documents to be discussed will be circulated to 
the  members  and  published  on  the  ECB’s  website  at  least  five  days  before  the 
meeting.  
Comments  and  other  submissions  received  by  the  Secretary  no  later  than  three 
days before a meeting shall be distributed to the AG and, in principle, shall also be 
published  on  the  ECB’s  website.  Documents  of  a  confidential  nature  (such  as 
documents received from market participants on the condition of confidentiality or 
documents deemed confidential by the Chairperson) shall not be published. 

9.5. Decisions of the AG shall take either the form of an advice that is sent directly to 
the ECB’s decision-making bodies (i.e. the Governing Council and the Executive 
Board) or of decisions concerning the organisation of the work of the TGs.  

9.6. As a rule, any advice to the ECB’s decision-making bodies shall be adopted by 
way  of  consensus  among  the  AG’s  members  taking  part  in  the  AG’s  decisions. 
Whenever no consensus can be reached, the Chairperson may decide to measure 
the degree of support for a specific advice by asking all full members of the AG 
taking part in the AG’s decision whether they agree or disagree with a proposal.  
In  case  there  are  several  proposals  for  advice  on  the  same  subject,  only  those 
proposals  that  are  supported  by  at  least  seven  full  members  of  the  AG  (or  their 
alternates) shall be submitted to the ECB’s decision-making bodies. Full members 
are not allowed to support more than one proposal on the same subject. 

9.7. In principle, decisions of the AG concerning the organisation of the work of the 
TGs (including the designation of a TG chairperson) shall be taken by consensus, 
or by simple majority vote, if no consensus is reached.  
As  an  exception  to  this  rule,  decisions  concerning  the  amendment  of  the  list  of 
TGs and/or the modification of the mandates of a TG require a majority of 60% of 
the AG’s full members. 

9.8. The AG shall ensure that a wide range of market participants and authorities can 
provide  input  to  the  AG  and  that  they  are  informed  of  its  deliberations.  To  this 
end,  the  AG  shall  use  appropriate  means  to  consult  market  participants, 
authorities,  as  well  as  all  other  stakeholders  and  interested  parties  (e.g.  through 
public consultations, round-table discussions, dedicated meetings and information 
sessions, or the publication of feedback statements following consultations). The 

16

 
 
 
 
 
 
 
Secretary  shall  act  as  coordinator  for  any  such  consultations  and  may  seek  the 
support of the ECB project team.  
The AG may directly submit proposals to any formally established National User 
Group  (NUG)  for  comments,  if  deemed  appropriate,  as  well  as  to  NCBs  in 
countries where no formally established NUG exists.  
All consultations shall, as a rule, provide for a window of no less than three weeks 
for comments, unless the Chairperson of the AG decides otherwise.  
A resolution of an NUG received by the Chairperson of the AG or of a TG may be 
discussed by the AG or the TG respectively.  

10. Reporting lines and relationship with ESCB Committees: 

10.1. The Governing Council may provide general guidance to the AG, either on its 

own initiative or upon request.  

10.2. The AG shall submit its advice directly to the ECB’s decision-making bodies for 

their consideration. 

10.3. The AG may provide guidance directly to a TG via the respective chairperson as 
work  to  be  undertaken  pursuant  to  the  mandate,  either  on  its  own  initiative  or 
upon his/her request. 

10.4. The Chairperson shall debrief the AG on the discussions and conclusions of the 

CG. 

10.5. Through the Chairperson, the AG may consult an ESCB Committee or its sub-
group(s)  on  specific  technical  issues  within  the  field  of  competence  and 
expertise of that Committee (such as market impact analyses or legal issues in 
relation  to  T2S).  In  principle,  a  minimum  period  of  three  weeks  for  any  such 
consultation  shall  be  given,  unless  special  circumstances  require  a  shorter 
period. The Chairperson shall also ensure that the AG’s work does not overlap 
with the mandate of an ESCB Committee. 

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