Target2-Securities (T2S)

Reducing counterparty risk in European securities markets

T2S (TARGET2-Securities) is a new European securities settlement engine which aims to offer centralised delivery-versus-payment (DvP) settlement in central bank funds across all European securities markets.

Overview

About T2S

T2S (TARGET2-Securities) is a new European securities settlement engine which aims to offer centralised delivery-versus-payment (DvP) settlement in central bank funds across all European securities markets.

The main characteristic of T2S is that it will make cross-border settlement identical to domestic settlement, in terms of cost, technical processing and efficiency. A single set of rules, standards and tariffs will be applied to all transactions in Europe, dramatically reducing the complexity of the current market infrastructure.

Advantages of T2S

It is hoped that cross-border fees will be considerably lowered, making the European securities markets more attractive and cost-effective.

The use of DvP on a real-time gross basis will eliminate the counterparty risk, ensuring that a participant’s counterparty fulfils its obligations. The use of central bank money, i.e. the transfer of cash between participants’ accounts held at the respective national central banks, will eliminate the settlement agent risk. In T2S, both the securities and cash legs of the transactions will be settled in DvP mode: the securities will only be delivered to the buyer when the cash is delivered to the seller.

How does T2S work?

T2S will ensure real-time DvP and settle across borders by employing the so-called “integrated model”: both securities accounts and cash accounts will be integrated on one single IT platform, so that only one interface will be necessary between the CSDs and the T2S platform. T2S will accommodate both the market participants’ securities accounts, held at either one or multiple CSDs, and their dedicated central bank cash accounts, held with their respective national central bank. The dedicated cash accounts will be used exclusively for settlement purposes in T2S and will be linked to the participants’ cash accounts held in TARGET2 or another non-euro central bank RTGS account.

The use of an “integrated model” will allow T2S to connect any securities account at any participating CSD with any cash account at any participating central bank, within the same currency.

T2S will offer a set of advanced technical features that will make it one of the most sophisticated settlement engines in the world: advanced optimisation algorithms to enhance settlement efficiency, state-of-the-art autocollateralisation mechanisms leading to considerable liquidity savings, a wide range of liquidity management services through the dedicated cash accounts, and direct connectivity, i.e. the possibility for banks with large settlement volumes to have a direct network connection to the platform (under the rules and procedures defined by their CSD).

For more information about Target2-Securities, please visit the ECB website.

Last updated: 5 June 2015

FAQs

HSBC T2S Frequently Asked Questions

How should we communicate our new SSI's to HSBC?

HSBC's counterparties should notify us of their new T2S SSI's using the same communication channels they would today for other BAU changes.

If I trade with a non-European HSBC entity, are the trades in scope?

Yes, all trades settling in the wave 1, 2, 3 and 4 markets in Euros will be impacted by the T2S changes regardless of HSBC trading entity. The factors for determining what securities trades are in scope for T2S are market and settlement currency (Euro). For example, an Equity or Fixed Income trade settling in Switzerland in Euros will be in scope for T2S when traded with any HSBC entity.

Where can I find Generic Information in respect of T2S?

For detailed information on T2S please follow the links to the ECB website below.

T2S overview: https://www.ecb.europa.eu/paym/t2s/about/html/index.en.html

Will HSBC populate the 'optional' or 'additional' T2S fields?

Please see the fields that will be populated below per product/entity.

Optional Fields Fixed Income London Fixed Income Paris Fixed Income New York** Fixed Income Hong Kong** Equities London Equities New York Equities Hong Kong SBL London

Common Trade ref

No

 No

   

No

No

No

No

Client of delivering CSD participant

Yes

 Yes

   

Yes

Yes

Yes

Yes

Client of receiving CSD participant

Yes

 Yes

   

Yes

Yes

Yes

Yes

Securities account of the delivering party

No*

Yes****

   

No*

No*

No*

No*

Securities account of the receiving party

No*

Yes****

   

No*

No*

No*

No*

Additional Fields

Fixed Income
London

Fixed Income
Paris

Fixed Income
New York**

Fixed Income
Hong Kong**

Equities
London

Equities
New York

Equities
Hong Kong

SBL
Hong Kong

Opt Out ISO Transaction Indicator

No

 Yes ***

   

No

No

No

-

Cum/EX Indicator

No

 No

   

No

No

No

-

* If this field is populated then it should contain the 35 digit account number of CSD Participant Account. This field is not in scope for the Greek market.

** HSBC Hong Kong and HSBC New York do not currently trade directly in these markets.

*** HSBC Paris will follow market practices to populate this field.

**** HSBC Paris will populate this field if included in the client SSI.

Will HSBC participate in partial settlement for Wave 1, 2, 3 and 4?

HSBC will not be populating a value in the partial indicator field at trade level but may set a preference at account level. As such, if a counterparty populates the partial indicator with either:

  • 'Y' then the trade will auto-partial if shares are available and HSBC allows auto-partials on the account, (see table below). If a counterparty populates the field with 'Y' for a trade on an account for which auto-partials are not allowed then the trade will still match but won't auto partial.
  • 'N' then the trade will not auto-partial. Any partials will have to be agreed bi-laterally and re-instructed for the new amount.
  • <blank> then the trade will follow the default auto-partial rules for that market with HSBC.

Counterparties should note, if they wish to agree partials bi-laterally with HSBC and re-instruct for the new amounts then they should populate the partial indicator field with 'N'.

Please see the default auto-partial rules in place with HSBC per market and product.

Market Cash Equities SBL Fixed Income

Italy

Yes

No

Yes

Greece

No

No

Switzerland

Yes

No

Yes

Romania

Malta

Belgium (NBB and ESES)

Yes

No

Yes

Portugal

Yes

No

Yes

France (ESES)

Yes

No

Yes

Netherlands (ESES)

Yes

No

Yes

Denmark (VP Securities)

Yes

No

Luxemburg (VP Lux)

Yes

No

Germany

No

No

Yes

Austria

Yes

No

 
Hungary

Yes

No

Yes

Luxembourg (LuxCSD)

 

No

 

Slovenia

     
Slovakia      

Will HSBC use the 20C COMM field?

No, HSBC will not be using this function. Any future changes to this approach will be communicated to clients in advance.

What impact does T2S have on cancelling settlement instructions?

T2S will see the introduction of bi-lateral cancellations for matching settlement instructions. This will mean that any matched instructions need to be cancelled by both counterparties in order for the settlement to be cancelled in T2S. If only one side of a matched instruction is cancelled, the trade will settle on settlement date (if there are adequate securities and funds in the relevant accounts).

What impact does T2S have on Corporate Actions?

T2S will see the introduction of common rules & procedures to Market Claims, Reverse Claims, Transformations and Buyer Protections.

How are Market Claims and Transformations determined?

For securities in unit (i.e. shares) market claims are generated on failing trades with trade date prior to the ex-date. For securities in nominal value (i.e. fixed income instruments) market claims are generated on failing trades with intended settlement date prior or equal to the record date.

Securities MK Type Eligible Counterparty Decision Logic

In unit (Shares)

Market Claim

From the seller to the buyer

If TD < EX
And pending TRNs at EoD of RD

Reverse Market Claim

From the buyer to the seller
From the seller to the buyer

If TD > ED
And SD < RD

In face amount (Nominal - fixed income securities)

Market Claim

SD < RD
And pending TRNs at EoD of RD

TD = Trade Date

TRNs = Transaction

EX = Ex Date

EoD = End of Day

RD = Record date

SD = Settlement Date

 

Will Market Claims, Reverse Claims be detected and raised by our CSD automatically?

Yes. The detection period is 20 days after the record date.

Do the above rules apply to Transformations?

Yes. The only differences are that Transformations are only applied on matched pending trades at the end of record date/market deadline. Transformations are not activated in case of voluntary reorganisation events.

What changes are introduced for Buyer Protections?

Two key dates have been introduced - Guaranteed Participation Date - This is the last date for the buyer to purchase securities with the right to participate in an elective corporate action. Buyer protection deadline - This is the deadline for the buyer to provide to the seller an instruction with the buyer preferred option.

Last updated: 21 August 2016