Consultative report RTGS services in relation to the Eurosystem s vision for the future of Europe s financial market infrastructure

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1 State Street Corporation Barry Muir Senior Vice President and Chief Operating Officer, Global Services Onshore Europe 525 Ferry Road Edinburgh, EH5 2AW T E BDMuir@statestreet.com 4 April 2016 Via electronic submission: target.hotline@ecb.europa.eu European Central Bank Frankfurt am Main Germany Dear Sir/Madam, Consultative report RTGS services in relation to the Eurosystem s vision for the future of Europe s financial market infrastructure State Street Corporation appreciates the opportunity to comment on the consultation paper on Real Time Gross Settlement (RTGS) services in relation to the Eurosystem s vision for the future of Europe s financial market infrastructure. Our responses to the specific questions are set out in the attached appendix. State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors, including investment servicing, investment management, and investment research and trading. With $28 trillion in assets under custody and administration and $2 trillion 1 in assets under management as of December 31, 2015, State Street operates in more than 100 geographic markets worldwide, including the US, Canada, Europe, the Middle East and Asia. For more information, visit State Street s website at We welcome the Eurosystem s efforts to consult users on how its services and systems should evolve in the years to come. We believe there are significant benefits to be achieved in working towards a common platform to integrate the services presently operated on TARGET2 and TARGET2-Securities. State Street is supportive of efforts to realise the integration of the securities market infrastructure in the European Union and believes the integration of these services would advance these efforts. As with any developments of this significance, and in particular since these platforms currently use different message standards, the migration to the new end-state should allow for sufficient lead time so that all users can make the necessary adjustments to their connectivity models. We also note the Eurosystem s comments that it intends to assess the relevance of blockchain or distributed ledger technologies to its services. State Street sees significant potential for blockchain technology and is actively engaged in evaluating its application across many areas of our business. Our newly created Emerging Technology Centre is exploring the potential of the technology through internal testing, selectively partnering with vendors and industry consortia/collaboration. 1 Assets under management include approximately $22 billion as of December 31, 2015, for which State Street Global Markets, LLC, an affiliate of SSGA, serves as the distribution agent. Page 1 of 1

2 Thank you once again for the opportunity to comment on the important matters raised within this consultation paper. Please feel free to contact us should you wish to discuss State Street s submission in greater detail. Yours sincerely Barry Muir Senior Vice President and Chief Operating Officer, Global Services Onshore Europe Page 2 of 5

3 Appendix 1. Should the Eurosystem harmonise the user interface for Eurosystem services? If so, what would you identify as the specific benefits to your institution? If not, what would be your reason for not harmonising the user interface? State Street would welcome a harmonisation effort to create a single user interface for Eurosystem services. The continued developments towards providing for cash and securities infrastructure services by the Eurosystem should ideally include being accessible from a single interface. This would: Avoid multiple developments and consequential investments in building and maintaining connectivity if different services are being used Allows the market to migrate to the new messaging standards more quickly Provide consistent user training and knowledge maintenance across different teams and locations Provide more streamlined management of access rights Allow for operational efficiency by avoiding using multiple interfaces to investigate different aspects of a given instruction It is critical to ensure that any future common interface will offer a stable and highly reliable access point which is easy to implement and intuitive to use. The business requirements and functionalities needed for cash and securities operations may differ and need to be met adequately by this new interface. 2. Are there further considerations that the Eurosystem should take into account in deciding whether or not to harmonise the user interface? We believe it is critical to carefully review the different technical methods (e.g. MT vs. MX message formats) being used so that users are allowed to interface with the Eurosystem by a method of their choice without reducing significantly the scope of services available. For example, a client accessing the T2S Dedicated Cash Account via the T2 VAS mode has access to very limited cash reporting without building at least a User-to-Application (U2A) direct connectivity (DCP). Whilst we appreciate the Eurosystem s effort to allow users to access to T2S via T2, the significantly reduced service scope makes this viable only under certain conditions. Going forward, we believe the Eurosystem should aim to allow for a standard set of services available that goes beyond what is currently offered independent of the interface/connectivity option chosen and the design of the new interface should be developed in close cooperation with the industry. 3. Do you agree with the listed findings on the provision of multi-currency RTGS services? If not, please explain. A common shared infrastructure could create long term benefits for participants (i.e. single connectivity, common operational features) especially for those currencies that are expected to become part of the Euro currency in the future and/or if the respective currency is an eligible settlement currency on T2S. However, we believe that the benefits of a multi-currency RTGS platform will not accrue to most participants since it is unlikely that banks will wish to become direct clearing participants in all connected currencies. This would entail providing for the necessary liquidity provisioning at the respective central bank with access to their local credit facilities. These access conditions and collateral requirements are not harmonised and in the absence of a common currency, we do not anticipate those rules to be harmonised. Therefore, a shared RTGS platform with other non-eur currencies would not significantly alter the benefits and cost equation of becoming a direct clearing participant. There is a risk that existing users of Eurosystem services would only use these additional multi-currency services if the currency in question has a significant cross-border use. We therefore believe such a development should either provide additional benefits to those participants not using the additional currency services (i.e. from reduced transaction cost if the platform cost can be shared across more markets), or at least shield them from the cost of making such changes. This will require a robust governance structure to balance the interest of EUR and non-eur market participants. Page 3 of 5

4 4. Would you expect your institution to use multi-currency RTGS services? We do not believe we would use multi-currency RTGS services directly (unless it would involve British Pound Sterling in addition to EUR). 5. Would you expect your institution to use the additional fields that ISO payment messages support? If so, please describe the types of additional payment fields, and the purpose for which they would be used. We are not broadly supporting ISO However, we believe there would be a benefit if the market were to use the additional fields concerning remittance and payment data since there are data limitations in the current MT202/210/103 formats. We believe it necessary for the Eurosystem to facilitate the development of market standards and other best practices on how the various types of fields should be used in order to normalize this. This would allow for reconciliation effort and providing for a better audit trail of payment data. It will be critical to ensure that the migration to ISO20022 will be subject to a robust migration plan ensuring consistency and interoperability between different standards and connectivity options. Since a new messaging standard will require significant investments from the industry, there needs to be sufficient lead time. 6. Do you agree with the Eurosystem's expectations in terms of participants accounts management? State Street agrees with the Eurosystem s expectations. 7. Could you indicate which services TARGET2 must retain or enhance regardless of their usage? 8. Conversely, could you indicate which services should be reassessed or not be considered in the context of the Eurosystem s vision? Central banks RTGS systems similarly to any other market infrastructure - should carefully assess the need to expand their services in order to avoid unnecessary investments if the respective services are only used by a limited number of participants. We suggest the Eurosystem provide more detailed information i.e. the cost saving potential if certain underutilised services would no longer be supported (since market participants manage them internally e.g. the liquidity pooling features being a probable candidate for descoping from a future platform). Equally, it would be useful to understand if the usage were expected to change if other non-eur currencies would be operated on the Eurosystem s platform (see question 4). We believe this information is necessary in order to give informed advice on the best way forward. 9. Which of the current liquidity management tools does your institution currently use? 10. Which of the current liquidity management tools does your institution intend to use in the future? 11. Would your institution require RTGS services that are not listed as potential enhancements? State Street is using the following liquidity management tools at present: cash reservations and predefined liquidity transfers. We intend to continue to use these services and are regularly reviewing our operational approach to reassess whether additional services could be used to improve our model. 12. Does your institution have a requirement of extended opening hours for RTGS services? If so, for what purpose would the extended opening hours be required? What would be the required extended opening hours? The Eurosystem should align its strategy in line with international developments e.g. the extension by Fedwire and CHIPs for payments. An integrated platform of TARGET2 and T2S should obviously allow for liquidity to move both during the night and day, thus aligning the operating hours between those systems. Instant commercial payments are of interest to our customers and we consequently are interested in any additional offering by Eurosystem to facilitate this more effectively. This would require settlement support outside the current TARGET holidays and operating hours. 13. Does your institution have analytical requirements that could be provided as services? If so, please provide a brief description. We would be interested to understand any new services that would help State Street to comply with existing and/or regulation as intraday liquidity reporting requirements. Page 4 of 5

5 14. Are there services that the Eurosystem should provide as part of its RTGS services to support the compliance of your institution with regulatory requirements? If so, please list them. If not, are there specific reasons that such services could not be provided? 15. Have you identified an additional functionality that the settlement procedures for ancillary systems should cater for? If so, please describe. 16. Are there additional optional services that the Eurosystem should provide for ancillary systems? State Street has not identified a need at this stage. Page 5 of 5