ECB: The next steps in the evolution of the Eurosystem’s market infrastructure

26 September 2016

Yves Mersch said the Eurosystem’s strategic reflections on the future development of its market infrastructure centre around three components: the consolidation of TARGET2 and TARGET2-Securities; the settlement of services to support instant payments; and a Eurosystem collateral management system.

Opening remarks by Yves Mersch, Member of the Executive Board of the ECB, at the Eurosystem community session at Sibos, Geneva, 26 September 2016

Digitalisation of financial services

The digitalisation of financial services could result in new business models or products with disruptive potential in the financial sector. In particular, distributed ledger technology (DLT) has the potential to fundamentally change securities and payments business. However, this technology is still in its infancy. There are substantial functional, operational, governance and legal aspects which need to be carefully looked at before thinking about possible mass adoption. Hence, the Eurosystem cannot, at this stage, consider using DLT in the market infrastructure. Nevertheless, we are exploring whether its possible future use could bring benefits.

A multitude of different DLT approaches and models could jeopardise financial market integration by increasing fragmentation. Undue periods of market consolidation and standardization could hamper the smooth functioning of a Single Payments Area. We could be in a situation similar to the one that lead to the establishment of T2S.

The next steps in the evolution of the Eurosystem’s market infrastructure

The Eurosystem’s strategic reflections on the future development of its market infrastructure centre around three components:

  1. the consolidation of TARGET2 and TARGET2-Securities (T2S);
  2. settlement services to support instant payments;
  3. a Eurosystem collateral management system.

1. Consolidation of TARGET2 and T2S

Modernising TARGET2, leveraging the possibilities which are already available in T2S and consolidating the technical and functional components of TARGET2 and T2S services are the primary objectives. The Governing Council strongly supports these objectives.

In addition, consolidating TARGET2 and T2S provides an opportunity to further improve cyber resilience, to enhance the services offered to users and to establish a single access channel. During the investigation phase of the project, which will run throughout 2017, we will follow up on this year’s market consultation that was launched in February with the release of a consultative report on real-time gross settlement (RTGS) services.

2. Settlement services to support instant payments

By November 2017 end-user solutions for instant payments in euro should be made available at pan-European level by payment service providers. This means that by November 2017 the European financial market infrastructure has to be ready to clear and/or settle instant payments on a pan-European scale. The Governing Council has decided that it will launch and closely monitor an investigation with market participants on the necessity of extending settlement operating hours for a subset of its regular settlement services up to 24/7/365 to allow for real-time settlement of instant payments.

Instant clearing will be supported by the delivery of an enhanced TARGET2 functionality for the automated clearing houses. The project per se does not question the efforts of the ACHs to offer instant clearing. This is because instant clearing and instant settlement are complementary services (since the availability of instant settlement can make instant clearing less costly). It is true that they are also alternative services (since instant clearing may replace the need for instant settlement and vice versa).

3. Eurosystem collateral management system

As we look to the future, the Eurosystem will strive to drive harmonisation forwards, particularly regarding Eurosystem operations for the mobilisation of marketable assets, as well as the handling procedures for non-marketable assets, which still vary across the central banks. Furthermore, the Eurosystem will investigate, throughout 2017, the business case for and the scope and cost of a possible common Eurosystem collateral management system for managing eligible assets used as collateral in the Eurosystem credit operations.

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