TARGET2-Securities: What are the challenges and opportunities for CSDs and custodians?

This paper explores one of the most influential initiatives in the securities industry today: the TARGET2-Securities project launched by the European Central Bank (ECB). Based on the authors' direct involvement in the project since its inception and on their interactions with the industry, this paper summarises the concept of TARGET2-Securities, its direct and indirect drivers, and its achievements to date. Thereafter, the paper assesses how TARGET2-Securities fits in with other public and private initiatives, and identifies complementary agendas, along with potentially conflicting objectives and approaches. The paper also takes a close look into the fundamental open questions that remain to be answered in the near future in order to gain stakeholder commitment, relating to: (i) legal aspects; (ii) a governance concept for the project beyond the consultation phase, as well as for the running phase; (iii) a more detailed and thorough end-to-end business case; (iv) uncertainties during the interim phase between the launch of TARGET2 (cash) and the launch of TARGET2-Securities; and (v) the role of the newly announced CCBM2 project. Finally, it examines industry dynamics: (i) the general benefits for the market and those issues not being addressed; (ii) the impact on market infrastructures, and the required changes to their business models and approaches to ensure success in a world with TARGET2-Securities; and (iii) how market participants can benefit and which groups are well positioned to do so.