The evolving post-trade securities landscape in Europe can be viewed as a puzzle, of which regulatory and infrastructure changes are part. To complete the puzzle, market participants need to visualise the broader picture.
Our challenge as an industry is that these changes are all happening in parallel with different time horizons. However, by deconstructing the evolving landscape into five core elements, or pieces of the puzzle, can we begin to see the full picture: markets; clients; providers; technology and, last, but far from least, how we interconnect these elements into a European Strategy.
The securities market in Europe faces several infrastructure and regulatory changes:
- The European Central Bank’s TARGET2-Securities (T2S) platform is well and truly 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 important in meeting a broader range of compliance requirements with regards to regulations such as MiFID II and Basel II.
Instead of delivering individual solutions to help clients to meet singular challenges in the market such as T2S or an individual regulation, the question really becomes one of a wider context, what are the concrete benefits that this new landscape in Europe has brought to participants and how can they be aligned with the other developments that are shaping the market.
The final piece
Connectivity to a new settlement platform is just the start. In responding to these challenges in Western Europe, clients have changed their buying behaviour. In the case of the post T2S landscape, for example, they now buy on a regional basis, with a modular view of collaboration and partnerships with multiple providers to find unique solutions to multiple challenges.
Any financial institution doing business in European securities markets needs to satisfy itself that its operational needs and strategic objectives are being effectively met by its service relationships. Collaboration among service providers along the value chain is introducing the potential to reshape the value chain itself. It is no longer just about T2S solutions, but rather a broader European custody strategy and how they take advantage of a new European landscape in achieving broader strategic aims.
How do we achieve these broader aims?
Clients need to identify their priorities before considering their choice of providers in a European context. By asking themselves the right questions about what is important to them and their clients in the changing European landscape, they will be able to find the right solutions to meet their needs. Answering them will not immediately lead to a single obvious service solution but it should at least narrow the appropriate options to a smaller number that can be considered in more detail.
With many of the puzzle pieces in place, now is the time to act. Given the pace of technology innovation and disruption, waiting another five to ten years is not an option. Different models for asset safety, liquidity optimisation or collateral mobility are already live in the market. Now is the time to match individual needs with those models. Our latest whitepaper explores some of the model choices developed by the industry to help different stakeholders along the chain adapt to changing circumstance.
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