The European capital market stands at a pivotal juncture, shaped by transformative forces like the move to T+1 settlement and the ambitious goals of the Savings and Investments Union (SIU). In this dynamic landscape, innovative market models are not just aspirational but are already delivering tangible benefits.
In an interview with Dirk Loscher, Head of Custody and Investor Solutions at Clearstream Securities Services, we unpack how the pan-European CSD solution is positioning market participants for success in this evolving environment, drawing from a recent study conducted with the ValueExchange.
Transforming capital markets: the impact of T+1 and the SIU
Europe’s capital markets are undergoing significant change. How do you see T+1 settlement and the SIU reshaping the operational landscape for market participants?
These are indeed two of the most significant forces currently at play. The move toT+1 settlement is not merely an acceleration; it fundamentally rewires the entire post-trade lifecycle, demanding higher levels of efficiency, automation, and collaboration across the industry. Market participants will find themselves with mere minutes, not hours or days, to complete critical tasks like netting, exposure calculation, and funding before the first settlement batch. This compressed timeline will expose any lingering operational bottlenecks and place pressure on inventory management and intraday liquidity for efficient settlement.
Simultaneously, the SIU is pushing for a more integrated, deep, and liquid European capital market. The EU’s capital markets have historically suffered from fragmentation, which hinders cross-border capital mobilisation and reduces investment velocity. The SIU aims to address this by making capital markets more accessible for citizens and more effective in meeting the funding needs for crucial transitions like the digital and green economy.
Cross-border capital: overcoming fragmentation with pan-European CSD access
Beyond T+1, what other forces are driving the need for greater cross-border capital mobilisation and what role do CSDs like Clearstream play?
Mobilising capital cross-border is central to the SIU’s success, especially given Europe’s vast amounts of uninvested savings and limited cross-border investment activity. The challenge lies in overcoming national differences – be they in regulatory frameworks, tax systems, market practices, or standards.
This is precisely where Clearstream’s pan-European CSD solution offers a transformative approach. We are breaking down post-trade barriers by offering access to Europe via one securities account, one platform, and one partner. By providing harmonised access to 19 CSDs to date and major CCPs and trading venues, we enable seamless cross-border settlement and liquidity management. This approach promotes market-led consolidation and enhances interoperability, which is crucial for strengthening Europe’s position as a global financial centre. We offer clients the flexibility to consolidate their activity at their own pace, starting with specific asset types or markets.
The cost of complexity: financial and operational drivers for regional custody
You mentioned operational bottlenecks. What are the key commercial imperatives for adopting a regional custody model, especially when looking at the findings of the recent ValueExchange study on the subject?
In addition to the missed opportunities of cross-border capital mobilisation, the recent study with The ValueExchange brought into focus the significant financial drain caused by the traditional, highly intermediated settlement model in Europe. It estimated that the average tier 1 broker-dealer is losing €37 million per annum due to funding inefficiencies, operational costs, and lost earnings.
A large portion of this stems from treasury-related costs, estimated at €32 million. Firms maintain disparate funding accounts and collateral across multiple locations, leading to sub-optimal capital allocation and lost earnings from idle collateral. Basel III regulations have made reliance on uncommitted intraday credit lines increasingly costly. Furthermore, many firms are not leveraging the lower risk weighted asset (RWA) treatment available when facing financial market infrastructures (FMIs) directly.
From an operational perspective, an estimated €6 million is lost annually due to the complexity of managing multiple CSD relationships, disparate service standards, and the project management burden of adapting to market changes like T+1 across numerous providers. Sub-custodian models often lead to earlier cut-off times and increased settlement fails, incurring penalties under the Central Securities Depositories Regulation (CSDR).
Our pan-European CSD solution directly tackles these issues through consolidation. It allows for greater collateral utilisation and reduced funding costs by centralising assets and settlement on one account, substituting commercial bank exposures for FMIs to achieve lower RWA treatment, and simplifying operational processes with single connectivity, procedures, and reporting. These are not just theoretical savings; they are being realised by market participants today.
Making the shift: key success factors for implementing a regional custody model
What are the critical success factors for market participants to effectively implement this regional custody model?
The transition requires a strategic and coordinated approach. First and foremost, firms must develop self-funding capabilities. This involves investing in technology, processes, and competencies to manage their own balance sheet effectively, ensuring precise visibility and control over liquidity and collateral.
Crucially, it demands strong internal alignment across multiple departments, across network management, operations, treasury, and financing desks. We’ve seen great success with clients that ensure all stakeholders are working from a consistent, unified view of their data. A phased implementation approach, starting with specific asset types like fixed income or particular markets, can mitigate risk and build confidence within the organisation.
Finally, we also need to collectively address remaining technical barriers, such as resolving inconsistencies in Place of Settlement (PSET) instructions. This will require collaboration across the industry to ensure systems are updated and standardised.
Future-proofing markets: building the bridge to digital and tokenised assets
Looking ahead, how does the current pan-European CSD solution lay the groundwork for future digital transformation in capital markets?
The foundation we build today for cross-market interoperability is absolutely critical for the digital future. Clearstream’s aim is to support our clients by seamlessly processing both traditional and digital (tokenised or native) securities.
Our D7 platform is an example of an existing live solution that is integral to this transformation, allowing us to build the capabilities required for the future of digital finance. The efficiencies and harmonisation achieved through our pan-European CSD solution directly equip the market to more efficiently transition to a future including new digital assets and technologies.
Strategic imperatives for market participants
To conclude, what’s your outlook for European capital markets, and what message do you have for market participants considering this strategic shift?
European capital markets are on an undeniable path towards greater integration and efficiency. The challenges presented by T+1 and the ambition of the SIU necessitate a re-evaluation of operating models. The Pan-European CSD solution offers a clear and proven path to transforming current inefficiencies into significant strategic advantages, yielding scalable benefits across treasury and operations.
By strategically embracing a regional operational model, market participants can achieve increased efficiency, enhanced liquidity, and robust security. It’s a journey, one that Clearstream is committed to supporting through continuous investment in our platform, asset servicing, and digital capabilities. The time for transformational change is now, as it positions Europe for growth and increased cross-border investment, fundamentally strengthening its role in the global financial landscape.