TRADING ON FOREIGN EXCHANGES, INCREASINGLY CHEAPER From a few Euros, to a few cents

The cost of cross-border trading could drop by as much as 90% after the implementation of by the Central Depository of the Target2 Securities platform which is targeting the streamlining of trade settlement across Europe, Jeam Michel Godeffroy, the chairman of the Committee for the implementation of the T2S platform of the ECB said yesterday. He attended the ceremony for the signing of the documents for the set up of the National Working Group for implementing the T2S platform in Romania.

The ECB intends to launch the Target2 Securities in 2014, after its implementation was postponed several times. So far, around 37 central depositories and three banks have announced their intention to implement the T2S platform.

"Right now, a cross border transaction costs around 2-3 Euros, but after the implementation of T2S, the costs could be lowered to as much as 15 Eurocents/trade", the representative of the ECB said.

However, he did stress that nothing is final for now, because the initial estimates concerning the volume of cross-border transactions were invalidated by the crisis and thus new calculations are required.

The volume of cross-border transactions was one of the indicators that the ECB took into consideration when estimating the cost of the investments required for the central depositories to implement the T2S platform.

"We have several scenarios concerning the liquidity of cross-border transactions and we estimate that we will announce the investment needed to implement the Target2 Securities system in the beginning of September. Before the crisis, the volume of cross-border trades increased by 12% a year on average, but in 2008-2009 the volumes have decreased. As a result, we will need to make new estimates by taking into consideration the cross-border trades of the first half of 2010, meaning one of the most difficult periods", said Jean Michel Godeffroy.

Even though the officials of the ECB are wary of mentioning the costs that the central depositories will incur with the implementation of the T2S platform, but at an early stage these costs will be borne by the ECB. However, within six years from the implementation of the system, the Central Depository will need to pay back the ECB out of the commissions it will have made.

"Most likely, the benefits for the depositories will not be visible straight away because starting with 2014 they will need to return our investment while at the same time incurring other expenses with the technical harmonization. The benefits will be visible later", the official of the ECB said yesterday.

The Romanian Central Depository could be one of the first institutions of the kind that would participate in the testing of the T2S as part of a pilot-program which is expected to begin in 2013.

• Adriana Tănăsoiu: The Depository will need to develop a new business model

Whereas at the moment, trade settlement services account for 40% of the business of the Central Depository, together with the registry services (40%) and other services (20%), the implementation of the T2S platform will force the Depository to increase the weight of the value added services in its portfolio, at the expense of settlement fees, Adriana Tănăsoiu, the managing director of the Central Depository: "After the switch to the Target2 Securities platform, it is clear there won"t be much money to be made from settling trades and that we will need to adjust our business to have our value added services (such as dividend distribution, etc) account for 40% or our income".

One of the main benefits deriving from the implementation of the T2S is the fact that domestic brokerages will have access both to domestic and international settlements through the domestic Central Depository without being required to resort to the foreign depositories.

"Brokerages and banks will no longer be required to have direct relationships with other depositories, just the Romanian one. We expect that after the implementation of the T2S, our customers will need to review their interactions with the depositories of other countries", said Adriana Tănăsoiu.