The European post-trade landscape: regional integration initiatives paving the way for industry consolidation

The biggest changes in the global post-trade industry are taking place in Europe. The Eurosystem’s attempts to create a single market and associated market infrastructure are transforming for the European post-trade industry. Eurosystem’s Target2 Securities (T2S) project and the CSD Regulations (CSDR), along with numerous other regulations, are reshaping the European CSD (Central Securities Depositories) landscape. As settlement gets outsourced to the T2S platform, CSDs will lose a key revenue stream and will have to find new revenue by developing new offerings. Asset servicing capabilities will be a natural choice for many CSDs, but that may not be a winning proposition because they will face stiff competition from custodians, who have been offering these services for a long time. T2S will allow CSDs to expand their market coverage by becoming investor CSDs and offer domestic clients holdings of foreign securities. Efficient management of collateral has become of utmost importance, and T2S’s single liquidity pool allows CSDs to develop new collateral management solutions for their clients. EMIR requirements requiring holding of initial margin for derivative trades with a licensed securities settlement system enhance their opportunity, and most CSDs are developing collateral management solutions in response. Many CSDs are developing similar solutions to stay competitive in the post-T2S world, and there may be oversupply in the market along with duplication of efforts and investments. It is expected that the industry will go through consolidation. It is unlikely that CSDs will go out of business, at least in the short term, but their role will shrink significantly. In a new report we discuss these and several other key issues relating to the European post-trade market participants, including (I)CSDs and CCPs.