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“Do not just assume T2S will be a success”

24 Apr 2018

“Do not just assume T2S will be a success”Interview with Marc Robert-Nicoud, Clearstream

Marc Robert-Nicoud, CEO, Clearstream Holding AG

The CEO of Clearstream Holding on the European settlement platform and the OneClearstream offering

The European Capital Markets Union is one step closer to completion. Clearstream customers can now access the markets of France, Italy, Belgium and the Netherlands via one single interface. The CEO of Clearstream Holding, Marc Robert-Nicoud, explains why this matters.

Mr Robert-Nicoud, can you tell us what this new OneClearstream offering is all about?

We joined the European securities settlement platform T2S one year ago. This was the first milestone in our T2S strategy. The second step now involves the actual custody and securities services business. The two strands of our approach involve comparable costs and resources. We launched the two initiatives separately in order to ensure reliable delivery of both.

What will change for your customers as a result?

We have incorporated Italy, France, Belgium and the Netherlands into our investor Central Securities Depository, or CSD for short. This means we cover between 70 and 80 per cent of the entire T2S market in terms of transaction volume. What we have done is enable our customers who require securities settlement in central bank money to access various different markets via Clearstream Banking Frankfurt. The level of quality will be exactly the same as for our securities services provided via our international central securities depository, Clearstream Banking Luxembourg. This also complies with the requirements of the European Central Bank. We now offer a service that makes cross-border securities settlement simple. Clearstream Banking Frankfurt customers will be the first to be involved, and we have developed the offering with them. Yet it goes without saying that it is also available to customers outside Germany.

Will more markets be added?

We will migrate more markets, including smaller ones. It depends on market requirements. There might be some markets where the costs of joining would be prohibitive or others where the local partners are not ready yet. There are still some missing, for example Spain. Basically, though, we have already achieved a critical mass. There is no reason not to use the platform for cross-border transactions.

Are you really expecting to see cross-border transactions or is the main advantage not that investors can pool their securities in Clearstream Banking Frankfurt?

Our strategy addresses the needs of the market in many regards. It is about providing a single point of access to the different T2S markets and not just about simplifying network management. We offer a better overview of assets on the different markets, in terms of both the cash and the securities side. It simplifies many processes, including collateral management, in other words determining which securities can be used as collateral for which risk positions and doing so in a harmonised way. Another example is securities lending in positions that would otherwise be left unused for extended periods of time. This also results in the less fragmented lending pool. Moreover, there is also the advantage that all these transactions are being settled in central bank money, so there is no default risk in relation to custodian banks or commercial bank funds that do not cover these markets directly. And that means lower capital add-ons.

Clearstream also cooperates with local agents in France and Italy so does that work with the new system too?

Absolutely, for example, we cooperate with BNP Paribas in relation to French securities held with Clearstream Banking Frankfurt for a CBF customer. We have been offering this service in our international central securities depository business for decades. Now it is also something we can do for the T2S markets, and in central bank money to boot.

So the customer finds it easier, with just one single point of access?

Yes. Customers can opt to use a global depository that offers a single point of access to all markets in central bank money but where there is a credit default risk associated with that global depository. Alternatively they can choose to directly join Clearstream Banking Frankfurt and cover all of the connected T2S markets in central bank money without needing to arrange individual access to each.

Yet to access non-European markets, you still need to go via Clearstream Banking Luxembourg?

For the non-T2S markets, yes. There is no other option. There is no global settlement platform. What we have done, however, is to bring the quality of asset servicing at Clearstream Banking Frankfurt into line with the higher quality of our international central securities depository. Major customers can also use our harmonised application-to-application offering. In addition, we have a new online portal that customers can use to log in to the different markets.

What sorts of volumes have already been settled via such means?

So far, the cross-border volumes being settled in T2S are still low, and the business has come from Clearstream Banking Frankfurt. We are talking about two per cent or so. What is important for the future is that customers use T2S for what it was designed for, namely the settlement of cross-border transactions. The euro system and many supervisors are keeping a close eye on this development, and also watching some customers. Further changes will be needed to achieve this objective. But there are broker-dealers outside of T2S who are looking to switch, and some have already done so.

This also ties in with the ECB in its capacity as T2S platform operator.

It is good that the ECB is launching more infrastructure projects, in collateral management, for example. Nevertheless, it is also important to not just assume that T2S will be a success. Certainly, T2S has been a technical success for the ECB, and a technical and strategic success for us. However, if the platform fails to attract a high volume of cross-border business, it will not be a market success. Yet the ECB needs that success to be able to offer a financially viable solution. I am not claiming that we are the only provider of a cross-border solution, but we are doing our utmost to provide the best service.

Does this market success also depend on issuer behaviour? To what extent are you willing to issue pan-European securities via T2S?

Our feeling is that there is very little interest so far, apart from among supranational issuers and the ECB itself. The ECB needs to decide whether it is going to set up a large-scale European issuance service for banks and businesses or opt for something on a smaller scale. Business with supranational issuers and some governments is currently on the rise. It would be good for Clearstream if this trend were to continue. We have a strategic interest in encouraging issuers to issue their securities via Clearstream Banking Frankfurt. However, I do not think that is very likely over the next few years. First of all, we need a pan-European investor base that we can target. For example, we need a Spanish issuer that knows that it will also find Spanish investors at Clearstream Banking Frankfurt which could be interested in its issues. Then the market practice would change.

Are some assets like Eurobonds already migrating to T2S?

Only on a limited scale. International assets are mainly held with the international central securities depositories.

How will the fee structure change for your customers?

There is no easy way to align the fee structure with T2S. We pass the T2S fees on to our customers. Collateral management and asset management solutions have been simplified and harmonised, cutting the costs for our customers. Moreover, the model brings considerable savings in terms of capital requirements and opportunity costs, both of which are reduced if the most appropriate collateral is used to cover risk positions.

What about when monetary policy returns to normal?

With a more restrictive monetary policy, we expect to see slight tension in cash. This means that being able to use collateral efficiently and making greater use of securities lending will become more important.

Have you already seen an increase in customer interest?

Yes, and we have also seen interest from outside Germany as well as from banks that are reconsidering their Brexit strategy.

This article was first published in the Börsen-Zeitung (in German) on 20 April 2018.

Personal details
Marc Robert-Nicoud

is one of the youngest senior managers of Deutsche Börse. He has been CEO of Clearstream Holding and Clearstream International since August 2015. A native Canadian, Robert-Nicoud also holds a French and a Swiss passport. He joined Clearstream as Legal Counsel in 2006, having previous held the same position with the Swiss Banking Commission (the predecessor to FINMA, the Swiss Financial Market Supervisory Authority). Robert-Nicoud holds a Bachelor of Laws and a License in Civil Law from McGill University in Montreal.


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