ECB defends securities settlement system after fee hike

European Central Bank (ECB) headquarters building is seen in Frankfurt
European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany, March 7, 2018. REUTERS/Ralph Orlowski

May 8, 2019

By Huw Jones

LONDON (Reuters) – Financial markets need to push more trades through the European Central Bank’s settlement system to cut costs, an ECB official said, dismissing industry criticism that the new system was failing to deliver promised benefits.

The ECB built a pan-European TARGET 2 Securities, or T2S, platform for settling securities trades, to help create a cheaper European Union capital market to compete better with the United States — and with Britain after it leaves the EU.

Opened in June 2015, T2S has been in full operation for about 18 months but had to raise fees earlier this year.

Volumes remain too low to allow the ECB, which is still recouping its investment cost, to cut fees. Some national settlement systems that T2S was meant to replace still remain.

“The cost remains too high,” Cecile Nagel, chief executive of EuroCCP, a clearing house for share trades, told a conference organized by banking lobby AFME on Wednesday.

Guido Wille, a board member of Deutsche Boerse’s settlement arm, Clearstream, said T2S has not delivered lower costs or ease of access to pan-European settlement.

“It has added another layer,” he said.

Andrew Douglas, managing director of government relations at DTCC, which settles share trades in the United States, said U.S. settlement costs were a fraction of those in Europe.

The system has suffered delays and cost overruns since its inception in 2008, when total development costs were put at 203 million euros, an estimate that rose to 256.4 million euros within two years.

Marc Bayle, the ECB’s director general for market infrastructure and payments, said T2S has fully delivered on what was expected.

“The price at which we charge today has increased this year because the volume was lower than expected,” Bayle told Reuters on the sidelines of the conference.

Settlement fees in Europe would be far higher without T2S because national systems would have had to invest in cyber defenses, Bayle said.

“It’s up to the market … If the volume would increase we would decrease the price,” Bayle added.

Volumes would be boosted if Clearstream and Euroclear, the two big international settlement houses, gave up more settlement business to T2S.

“We are not necessarily greatly in favor of forcing market participants to move volume from one place to another,” Wille said.

(Reporting by Huw Jones, editing by Larry King)

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