July 2017

After years of implementation, most of Europe’s regulatory and infrastructure developments have now taken place or are being executed. Now that the landscape can be seen in its entirety, several strategic solutions have already presented themselves to intermediaries. But the full potential of the change is yet to be explored, writes Janet Du Chenne

The evolving post trade securities landscape in Europe is like a puzzle, of which infrastructure and regulatory change are key parts. To complete the puzzle, market participants need to visualise the broader picture. They need to deconstruct the landscape into core elements, or pieces of the puzzle – markets (regulatory landscape and infrastructure), clients, providers, operating processes and technology – and harness the final piece, which is the connectivity of these elements into a European strategy to remain competitive.


The first piece of the puzzle is the regulatory and infrastructure themes, which are well understood in European securities markets.

  • The European Central Bank’s TARGET2-Securities (T2S) platform is alive, with the majority of the volumes of participating markets on the platform. T2S is reshaping the securities value chain by providing a single platform for settlement and matching across 23 European Central Securities Depositories (CSDs) within a harmonised settlement day in Central Bank money;
  • Investor protection is a consistent theme within regulations such as the Alternative Investment Fund Manager Directive (AIFMD), Units in Collective Investment Trust Schemes V (UCITS V), the Markets in Financial Instruments Directive II (MiFID II) and the Central Securities Depository Regulation (CSDR);
  • Risk reduction is another important theme, driven by MiFID II and the European Markets Infrastructure Regulation (EMIR);
  • Collateral mobility and liquidity optimisation are becoming increasingly more valuable in meeting a broader range of compliance requirements with regards to regulations such as MiFID II and Basel II.

A recent industry discussion in London revealed how clients and service providers have adapted to these changes1.


Some clients have reviewed their existing business models in order to meet new obligations. For Northern Trust, T2S was the catalyst for that review. The platform allowed it to get closer to the market and to use central bank access and to unbundle some of the services that it buys as a global custodian. “This is really important because our clients look to us to try to unbundle the services for them,” said Justin Chapman, global head of market advocacy and innovation research. “With T2S as the trigger, CSDR and other regulations, this was probably the first step towards driving that unbundling and the catalyst for other changes we’ve seen.” However, he said, the full potential of the structural and market change remains to be seen, with product strategies now coming to the fore. “Over the next 12–18 months we’ll see people looking to leverage the opportunity of T2S that we could have leveraged earlier if we were not facing the same implementation timeline as this project.”

Service providers

Service providers have introduced efficiencies, not only in their new client offerings but also in addressing the cost pressures of reform on their own existing operating processes. For market infrastructure provider Clearstream, this meant making the services offered by its previously separate international central securities depositary (ICSD) and domestic CSD space more interchangeable for clients. “Clients look to CSDs that are part of T2S to provide value-added services in a similar way to what ICSDs have offered historically,” explained Clearstream’s Guido Wille. “Clients now look to Clearstream Banking Frankfurt and LuxCSD, which is jointly owned by the Banque centrale du Luxembourg and Clearstream, to provide vanilla securities services like T2S settlement, custody and core services, but also for financing, segregation of securities as well as ICSDs like asset and tax services.”

With the environment not yet stable, services providers will need to be flexible in how their business and operating models work. Meeting both regulatory demands and returning cost efficiencies through a revised operating environment may require partnership and collaboration across different providers. “From the client side,
we need to understand where some regulation will end up,” said Euroclear’s Edwin De Pauw. “Some clients have access to central bank money and others don’t, while others emphasise balance sheet netting. So we’re seeing open models with clients not looking for a one-stop shop but rather a combination of providers.” For example, Northern Trust is using an investor CSD model, while its asset servicing is being done by Deutsche Bank. The flexibility of those models and that collaboration is important in this unstable environment.

A live poll during the industry session revealed that 44% of the audience in attendance plan to optimise their European post-trade securities and cash models for T2S. But people are looking at T2S, regulation, and their underlying assets – including equity, cash and debt – and now emerging technologies. People will make different model choices around their priorities. 

As a custody provider, Deutsche Bank decomponentised its service and product offering and its value-added services to address clients’ specific challenges, as well as to achieve its own cost efficiencies.  “With T2S we saw a shift from products to solutions to address the market problems our clients and their clients are facing,” said Graham Ray, Global Head of Product Management, Investor Services, Deutsche Bank. “We looked at our T2S products, our custody services and the technology they sit on and put them all into different product components. It was a fundamental shift towards looking at data front to back to deliver information to our clients and their clients and innovate products.”

In response to those challenges, 46% of the audience polled said they see themselves changing their business model or service provider. Part of that strategic question, said Chapman is how should the business look in 10 years’ time rather than the current cycle. “We are all under ROE pressure – we all have legacy issues in our business that have been built up over a long period of time, so if there’s an opportunity to change that you have to embrace it. The economics have changed the market and have introduced costs to business models, which should therefore be challenged.”

Operating processes and technology

The twin promise of digitisation and distributed ledger technology have led to a review of where intermediaries can add value and how technology can be deployed to enhance that value.  

Northern Trust’s clients take decisions on their data and larger macro views of data. “We are looking to leverage those technologies with DLT cognitive learning solutions to address the data silos within the organisation,” said Chapman. “These markets need to evolve to be much more fluid in terms of data capture and data optimisation and that will drive the returns we are looking for and provide insights demanded by the client.”

The final piece

Completing the puzzle requires a modular approach. This enables the securities services industry to deliver solutions using these evolving technologies. Connectivity through T2S is just one example of what can be achieved through collaboration, afforded by the luxury of a 10-year implementation timeline. The platform has led clients to buy on a regional basis with a modular view of collaboration and partnerships to find unique solutions to multiple challenges. It has enabled more asset, mobility of the security and cash assets while ensuring asset safety and investor protection. But the full benefits of the evolving landscape are yet to be seen and with the pace of change in technology and the threat of industry disruption, more collaboration is needed.

That openness among competitors, peers and clients to collaborate and to be perceptive in looking at market problems with others who understand them is the final piece of the puzzle, once the product, value and capability are in place.

For this, said Ray, open collaboration could assist in identifying technology providers that can be leveraged to bring solutions to the market quicker. “The cultural shift in resources and fintechs ensure mobilisation much quicker. It won’t take long to replicate the momentum cash payments to do the same with equity and debt assets,” he said.

“I don’t think we can optimise our technology efficiently if we all optimise our own technology,” agreed Chapman. “If we want to optimise, we have to invest together.”
Northern Trust’s T2S collaboration showed that market participants don’t have to have certain services in house going forward, added Chapman. “The opportunity for mutual structures is there – it just depends on the market to drive that,” he said.

“We still need individual expertise like asset servicing, but we also need other expertise and we’re seeing conversations like that with clients and participants. 30 participants with one solution is better than 30+ solutions.”

The benefit of collaboration is that it addresses non-standardised products in financial institutions. A custody product may be integrated with some FX capability but with technology moving so fast, that technology might be taken away by the nimbler fintechs. The need to collaborate and let go of some of the competitiveness is paramount to success.

The Deutsche Bank View

The reshaping of the post-trade landscape is driven by:

  • Regulatory compliance and infrastructure initiatives
  • Component-based products
  • New business models
  • Evolving technologies

At the heart of all of this is a need to collaborate and connect these four elements into a business-as-usual modus operandi. This collaboration ensures that our clients leverage the rich human expertise of Deutsche Bank for their benefit and their clients’ benefit to comply with the regulatory changes, while always having access to our product and technology developments.

We believe that optimising for tomorrow means ensuring the industry has made the right choices today and has done this collectively as a community.

Satvinder Singh is Head of Global Securities Services at Deutsche Bank

1 The Global Custodian Industry Sessions event took place on 16 March 2017 in London

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