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

by Arin Ray,  Joséphine de Chazournes, June 12, 2017
Industry Trends
EMEA

Abstract

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

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

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

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

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

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

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

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

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Table of Contents

Executive Summary

1

 

Key Research Questions

1

Introduction

3

T2S: Its Progress and Impact on Post-Trade

4

 

Impact on Settlement

5

 

Impact on Servicing

6

 

Impact on Other Services

6

Agents of Change in the European Post-Trade Ecosystem

8

 

Macroeconomic

8

 

Regulatory

9

 

Market Infrastructure

10

 

Technology and Process Improvements

11

 

Assessing the Impact on Market Participants

12

Reshaping of European Post-Trade Services

14

 

Settlement

14

 

Asset Servicing

14

 

Issuance

15

 

Collateral Management

15

 

Cash Management

17

Evolution of Post-Trade Business Models

18

 

What We Expected in 2013–2014

18

 

What We See in 2017

21

Conclusion

26

 

Keys for a Post-Trade Industry Evolution

26

Leveraging Celent’s Expertise

28

 

Support for Financial Institutions

28

 

Support for Vendors

28

Related Celent Research

29

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