The European Central Bank (ECB) recently published the TARGET2-Securities (T2S) annual report for 2023, revealing a total transaction value of €200.75 trillion. The figure marked an increase of 8.99 per cent in value settled compared to the previous year. Settlement efficiency went up to 94.32 per cent in terms of volume, a 0.62 per cent increase. It “remains a key topic”, writes the ECB, and will continuously be addressed in dedicated market settlement efficiency (MSE) workshops this year.

At 69.02 per cent and 27.16 per cent respectively, delivery-versus-payment (DVP) and free-of-payment (FOP) transactions contributed to 96.18 per cent of the settled volume on T2S. Unsurprisingly, due to their sheer volumes, these transactions also represented “around 97.76 per cent of all unsettled transactions”.

On average, T2S participants chalked up 795,654 cash penalties per month as a result of late matching and settlement fails in euro denominated activity – representing €70.43 million in value.

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Measuring efficiency

The T2S CSD Steering Group (CSG) has devised three main measurements of settlement efficiency for the platform: the first, to “determine whether T2S is performing as expected from an operational perspective”; the second, to “capture the behaviour of T2S participants”; the third, developed in 2020, to follow the Central Securities Depositories Regulation (CSDR) guidelines on which transactions count as settlement fails.

“Typically, the settlement efficiency of the platform is the highest and most stable of the three measures,” writes the report. This suggests that “settlement fails are most likely driven by market behaviour”. In addition, “CSDR-like settlement efficiency has improved in recent years”, which “suggests that the entry into force of the penalty mechanism has had a positive medium-term effect”. The ECB emphasises the role of MSE workshops, describing it as “a forum where the T2S operator and the market can discuss this key topic”.