ECB could offer governance concession on T2S

The European Central Bank (ECB) would be prepared to modify the governance arrangements for Target2Securities (T2S), its platform for securities settlements, said Gertrude Tumpel-Gugerell, the member of the executive board responsible for payments and market infrastructure at the European Central Bank, at a briefing in London.

"We could offer a special governance model where all central banks involved have an equal say in the operations and strategic direction of T2S," she said.

At present, overall responsibility for the T2S programme is held by the ECB decision-making bodies, ie, the Governing Council and the Executive Board. As the central bank of a non-eurozone member, the Bank of England is not represented on this. An eight-member T2S Programme Board is charged with the day-to-day management of the T2S project. Members do not represent their home institutions on this board, the ECB says.

The ECB has made overtures to the Bank and the City of London in 2009 but was rebuffed over questions of governance and costs. The offer of a concession is unlikely to meet with acceptance, however, as Andrew Bailey, the chief cashier of the Bank, made plain its view that representation must be based on currency share.

"The second point on governance is that within an overall governance structure that should reflect the share of each currency in usage of the system, we would require a very clear arrangement that provides for the Bank and UK users to exercise direct control over sterling settlement in T2S," he wrote in June 2009.

The ECB is in conversion with several non-eurozone markets regarding settling securities on the T2S platform. "For each central bank, it is an issue to do with whether they trust the outsourcing of their currency to another," said Tumpel-Gugerell, noting that at present the Bank outsources the settlement to Euroclear, a Belgium-based provider of settlement services.

The addition of sterling would provide a boon for T2S and would lower the price of sending a settlement instruction as sterling market volumes are equivalent to 40% of euro volumes. "T2S will still be viable without sterling settlement but with sterling included, settlement would be considerably cheaper," said Tumpel-Gugerell.

She would not comment on how much of an impact sterling's membership would have on the 15 cent ($0.2) per instruction price set last week or on how it would affect the system's costs. She noted, however, that T2S was designed from the outset to be a multi-currency system and that for a large international security house it would be an advantage to have the same system.