Euroclear and Clearstream granted time to agree joint road map

Both ICSDs intend to start a feasibility assessment for real-time settlement after the completion of Target2-Securities migration in June 2017

Bridge over troubled water? ICSDs urged to improve Bridge platform

Euroclear and Clearstream have been granted more time by the International Capital Market Association's European Repo Council (Icma ERC) to come up with plans to improve Bridge, an electronic communications platform through which customer transactions are settled.

In March, Icma ERC wrote to Clearstream and Euroclear complaining of its "significant disappointment" regarding progress to establish tri-party settlement interoperability between the two international central securities depositories (ICSDs), Icma ERC and Eurex Clearing.

At that time, Icma ERC sought a clear written commitment to deliver an appropriate development plan before the ERC held its annual general meeting in Brussels on May 18. At that meeting, the ERC's chair Godfried De Vidts had intended – if no further progress could be reported by the ICSDs in the matter – to refer the issue to the European Commission (EC), asking it to intervene.

De Vidts believes the EC could, after the European Securities and Markets Authority provides its Level 2 technical standards and when the Central Securities Depository Regulation (CSDR) becomes effective at the end of 2017, require all settlement in both central and commercial bank money to be real time, or as close as possible to real time, for example with a maximum of two minutes to exchange files.

But the ICSDs have now asked for an extension of deadline to May 29 in order to further develop their proposal to introduce a phased introduction. They hope then to present a joint road map that would meet the needs of the market while taking into account the constraints imposed by the regulatory agenda.

As part of the road map, the ICSDs have proposed no change to the agreed scope in Phase 1 planned for implementation in September 2015; turnaround times would be reduced to 35-90 minutes and later Bridge input deadlines would be instigated.

Phase 2, in Q1 2017, would involve "substantial improvements leveraging current Bridge architecture". Previous discussions have scoped two options in this regard. The first would achieve maximum turnaround of 26 minutes as from Q1 2017, with no scope for any further enhancement based upon this current infrastructure. The second would create new infrastructure to achieve turnaround times of between 9 and 34 minutes – 21 minutes average – by end 2017, with the scope for subsequent incremental improvements to be achieved.

In Phase 3, both ICSDs will start a feasibility assessment for real-time settlement after the completion of Target2 Securities (T2S) migration in June 2017.

The ICSDs have voiced a caveat that they need to complete certain additional IT validations internally and bilaterally before confirming this road map is sustainable.

Icma ERC believes that benefits of collateral flows following from T2S will not be felt by private investors unless the settlement bridge between the two major ICSDs is upgraded.

Euroclear declined to respond and Clearstream did not respond by press time, but a source close to the issue noted, with regard to the EC requiring settlement to be a maximum of two minutes, that CSDR does not contain a required settlement frequency and, as such, the EC would have to amend CSDR, which from a legislative standpoint is closed.