Back office costs for T2S to run as high as EUR27 million
European banks and broker-dealers are lagging in their understanding of the impact of the European Central Bank's plans for harmonising settlement under the Target2Securities platform, with migration costs for back offices estimated at anywhere between seven million euros and EUR27 million.
The implementation of the T2S infrastructure by the ECB, coupled with the impact of new regulations on central securities depositories (CSDs), will require market participants to undertake a thorough review of their current back office system capabilities.
Research commissioned by Swift and conducted by analyst group Celent finds that the post-trade providers most impacted by T2S - CSDs and custodians - are furthest advanced in their preparation. However, market participants that will be impacted to a lesser extent, such as banks and broker/dealers, are still navigating the complexity of T2S.
The study estimates that the level of investment required to adapt a back office to the T2S ecosystem will range from EUR7 million for a market player that modifies its existing system using a communication hub plus adaptation layers, to as much as EUR27 million for a firm that decides to revamp its back office systems for both settlement and custody.
A significant portion of IT investment for T2S will be driven by communication complexity, the report finds. "Market participants will have to operate in an ecosystem that relies on disparate messaging formats, and where many local specificities remain. This situation not only generates additional cost but also raises some concerns about the operational risk incurred by market participants in case of communication failure and mismanagement," it states.
The T2S infrastructure is set to go live in three waves within 18 months from the June 2015 commencement date. The ECB has warned that fees for trades passed over the harmonised platform may yet be revised upwards as settlement volumes in depressed Eurozone markets continue to languish.
Source Finextra - 06 03 2013.