Central Banking

UK opts out of ECB's T2S

Reports emerge suggesting the UK has opted out of the European Central Bank's Target2- Securities project

The UK has opted out of the European Central Bank's Target2- Securities (T2s) project, even though it could eventually help lower the cost of trading in the region's capital markets, according to an article in the Financial Times.

The move comes as the debt crisis in the Eurozone has raised questions among some euro sceptic politicians about the integration of the UK's financial system with the region.

The newspaper said the Bank of England (BoE) "recently decided" not to take part in T2S citing two people familiar with the decision.

One industry expert said that if this decision is true then T2S will most likely be more expensive to implement for other countries in the Eurozone. The UK is the largest single securities market in Europe and its non involvement means it could create a significant diseconomy of scale.

The UK could also suffer as it loses out on the benefit of any future reductions in settlement costs.

The ECB is building the T2S platform, which will offer one-stop shop settlement in securities such as shares from September 2014.

It will be a multi-currency service and it was hoped it would attract the UK's support as the region's biggest stock market, representing 40% of euro transactions.

T2S is part of a wider European project to harmonise cross-border processes and reduce capital market transaction costs to make the region more competitive with the US, where post-trade processes such as clearing and settlement are cheaper.

Last year, the BoE expressed concerns about the loss of control over sterling denominated securities to T2S.

At the time of writing this article, the BoE was not available for comment.

This article first appeared on ICFA Magazine

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