Transforming for a Single European Securities Market

In order to further stimulate cross-border investment within the eurozone, the European Central Bank (ECB) will put in place a single technical platform for the settlement and delivery of securities transactions. Intended to drive economies of scale and efficiency, this common infrastructure, called Target 2 Securities (T2S), will be shared between all central security depositaries (CSDs) and should be operational sometime in 2015.

For international financial institutions, T2S means putting in place the foundations of what will ultimately become a single domestic securities market at a European level, and initiating a significant transformation of its post-trade activity. To prepare for this, and turn regulatory change into an opportunity SGSS called upon CSC.

The publication in 2011 of the specifications of T2S was the starting point for financial institutions to set their adaptation projects in motion. Initiated by the ECB, T2S is being developed in cooperation by four central banks in the eurozone (those of France, Germany, Italy and Spain) and will be used by the 22 CSDs that signed the Framework Agreement proposed by the Eurosystem at the end of June 2012.

Consolidation and Harmonization

As one of the leading providers of securities services in Europe, SGSS operates client service units and back offices in all the main European financial marketplaces. Since the CSDs in these markets have decided to join the T2S platform, SGSS is directly involved in this project to structure and harmonize all post-trade activities. “For SGSS, the goals of consolidation and harmonization in T2S translate directly into questions regarding geographic and functional matters,” sums up Didier Rolland, director of Securities Operations and member of the executive committee of SGSS.

In May 2011, in order to analyze and prepare for the impact of T2S, SGSS called upon CSC. CSC has been involved in the T2S project since it was launched by the ECB in 2008, and has closely monitored the long-term consequences for the post-trade market. “The clarity of CSC’s proposal in terms of methodology, deliverables and mutual expectations convinced us of its ability to support us in the context of launching the project within SGSS,” recalls Hugh Palmer, T2S project director at SGSS.

A Necessary Organizational Adaptation

With the creation of a single integrated domestic market on the horizon, clients with pan-European activities ― regardless of their origin ― will expect to receive services of similar quality from one country to another. They will also expect to benefit fully from the effects of this harmonization, particularly in terms of cost.

“T2S will profoundly change the conditions applicable to post-trade activities in Europe. SGSS not only needs to adapt in terms of technology and regulatory compliance, but also has to evolve in terms of organization and operational efficiency,” emphasizes Eric de Nexon, director of Marketplace Relations with SGSS. It’s in this context of adaptation and transformation that CSC’s involvement is focused. It consisted initially of developing a high level vision and potential target operating model, and in a second stage, refining this vision for the group’s processes and organizational and technological impacts.

The main challenge of the project is its international dimension. Roughly a dozen domestic locations of SGSS are involved in the initiative. There is also a very tight deadline for the implementation of the project, given that the systems are planned to go live in autumn 2014, to be able to carry out the end-to-end and external testing necessary to guarantee the success of the planned migrations.

The team assembled by CSC started by mapping functionalities and relationships among national entities as well as between national entities and the CSDs. Combined with clear current and future specifications, this visualization of business activities helped develop a target operating model that combined rationalization of the back office with a thorough redefinition of services to align with T2S requirements.

An Approach Based on Processes, Close to the Field

On the basis of these strategic recommendations, in the second phase of the project the CSC team was given the task of deepening the transformation scenario by integrating the various countries involved. Previously, settlement/delivery was a national matter, managed autonomously by each local entity. The new SGSS model was based on the principles of harmonization and rationalization.

Very close to the field, during the numerous workshops organized locally (modeling of banking processes, reflections on external account structure, etc.), CSC also drew upon its own library for describing processes, both current and future, at a high level. “An approach based on processes, suggested from the beginning, was ideal for arriving at an optimal model which was acceptable for ― and accepted by ― everyone,” comments Joseph El Gharib, partner at CSC.

Since the end of 2011, SGSS has had the concrete and detailed elements necessary to launch on schedule the various projects needed for its transformation in readiness for T2S. “The CSC team demonstrated that they were able to rapidly assimilate our organization’s characteristics and culture, and were able to adapt to the constraints inherent in a continuously evolving project like T2S. It’s this pragmatism and rigor, combined with solid competencies, that enabled CSC to be a real advisor for us throughout the project,” states Hugh Palmer.