T2 (settlement system)

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T2 is a financial market infrastructure that provides real-time gross settlement (RTGS) of payments, mostly in euros. It is operated by the European Central Bank and is the critical payments infrastructure of the euro area. With turnover in the trillions of euros every day, it is one of the largest payment systems in the world. [1] It is one of three so-called TARGET Services, together with TARGET2-Securities (T2S) for securities and TARGET Instant Payment Settlement (TIPS) for fast payments. [2] The acronym TARGET stands for Trans-European Automated Real-time Gross-Settlement Express Transfer.

Contents

T2 replaced its predecessor RTGS system, TARGET2 (itself introduced in 2007-2008), on 20 March 2023. [3]

Overview

Like other RTGS systems, T2 allows individual banks to submit payment orders and have them settled in central bank money, namely the euro. T2 settles payments between banks as well as those related to the Eurosystem's own operations. [1] Member banks can connect to T2 either via SWIFT or via NEXI-Colt, a service of Nexi. In legal terms, the relationship is between the member bank and the relevant National Central Bank within the Eurosystem. [2]

In addition to payments in euros, T2 allows settlements in other currencies of the EU if the respective central bank opts for it. [1] This is a new feature of T2 compared with TARGET2, as is the adoption of the ISO 20022 messaging standard. [2] T2 also integrates a Central Liquidity Management (CLM) functionality which extends to T2S and TIPS. [4] The transition to T2 also entailed the phasing out of national settlement systems that had been kept e.g. for overnight deposit and intraday credit provision. [5] : Box 1 

T2 was developed jointly with T2S by four central banks of the Eurosystem: the Bank of France, Bank of Italy, Bank of Spain, and Deutsche Bundesbank. [2] It is planned to be complemented by a new Eurosystem Collateral Management System (ECMS), which will the single collateral management system for collateralising the Eurosystem's monetary policy operations. [4]

Like its predecessors TARGET and TARGET2, T2 is used for the end-of-day settlement of EURO1 (operated by the Euro Banking Association) and payments in euros between CLS Bank and its members. [6] : 6 

On 21 March 2024, the Eurosystem and Danmarks Nationalbank signed an agreement that provides for Denmark to join T2 (as well as TIPS) in March 2025, allowing for T2 to settle transactions in Danish krones as well as euros. [7]

Statistics

In the course of 2023, TARGET2 (until 20 March) and T2 (after that date) settled 104 million transactions for a total turnover of €559 trillion, with daily turnover fluctuating between €1.4 trillion (29 May) and €4.7 trillion (20 March). That places TARGET2/T2 turnover below CLS and Fedwire but above BOJ-NET (Japan) and CHAPS (United Kingdom), as has been the case throughout the previous decade. [5] : 1.1  The system suffered no outages during 2023; 90 percent of transactions were settled within 38 seconds, whereas 0.09 percent took more than five minutes. [5] : 2 

As of end-2023, T2 had 956 direct participants holding an RTGS account, opening access to T2 settlement to 5,368 correspondents worldwide. In total, T2 was accessible to nearly 40,000 participants, including branches and subsidiaries of direct participants and correspondents. [5] : 3.1 

See also

Related Research Articles

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<span class="mw-page-title-main">Deutsche Bundesbank</span> Central bank of Germany

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ISO 20022 is an ISO standard for electronic data interchange between financial institutions. It describes a metadata repository containing descriptions of messages and business processes, and a maintenance process for the repository content. The standard covers financial information transferred between financial institutions that includes payment transactions, securities trading and settlement information, credit and debit card transactions and other financial information.

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<span class="mw-page-title-main">Fedwire</span> Real-time gross settlement by Federal Reserve Banks

Fedwire is a real-time gross settlement funds transfer system operated by the United States Federal Reserve Banks that allows financial institutions to electronically transfer funds between its more than 9,289 participants. Transfers can only be initiated by the sending bank once they receive the proper wiring instructions for the receiving bank. These instructions include: the receiving bank's routing number, account number, recipient’s name and dollar amount being transferred. This information is submitted to the Federal Reserve via the Fedwire system. Once the instructions are received and processed, the Fed will debit the funds from the sending bank's reserve account and credit the receiving bank's account. Wire transfers sent via Fedwire are completed the same business day, with many being completed instantly.

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TARGET2 was the real-time gross settlement (RTGS) system for the Eurozone from its phased introduction in 2007-2008 until its replacement with T2 in March 2023. As such, it was one of the Eurosystem's TARGET Services, replacing the original TARGET RTGS introduced in 1999. Like the other TARGET Services, it was developed and owned by the Eurosystem.

TARGET2-Securities, in shorthand T2S, is the Eurosystem's platform for securities settlement in central bank money. T2S offers centralised delivery-versus-payment (DvP) settlement across several European securities markets, without being itself a central securities depository (CSD) since it does not offer CSD services such as custody or asset servicing.

The Clearing House Automated Transfer System, or CHATS, is a real-time gross settlement (RTGS) system for the transfer of funds in Hong Kong. It is operated by Hong Kong Interbank Clearing Limited (HKICL), a limited-liability private company jointly owned by the Hong Kong Monetary Authority (HKMA) and the Hong Kong Association of Banks. Transactions in four currency denominations may be settled using CHATS: Hong Kong dollar, renminbi, euro, and US dollar. In 2005, the value of Hong Kong dollar CHATS transactions averaged HK$467 billion per day, which amounted to a third of Hong Kong's annual Gross Domestic Product (GDP); the total value of transactions that year was 84 times the GDP of Hong Kong. CHATS has been referred by authors at the Bank for International Settlements to as "the poster child of multicurrency offshore systems".

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TARGET Instant Payment Settlement or TIPS is a TARGET Service of the Eurosystem that allows the settlement of instant payments in central bank money. The acronym TARGET stands for Trans-European Automated Real-time Gross-Settlement Express Transfer; other TARGET Services include T2 (RTGS) and TARGET2-Securities.

<span class="mw-page-title-main">Financial market infrastructure</span> Critical component of the financial system

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The China National Clearing Center is a public institution within the People's Bank of China that runs several of China's key financial market infrastructures.

The Eurosystem Collateral Management System (ECMS) is a unified platform for collateral management in the Eurosystem, intended to support the effectiveness of monetary policy in the euro area. It is one of the Eurosystem's TARGET Services, together with T2 for large payments, TARGET Instant Payment Settlement (TIPS) for instant payments, and TARGET2-Securities (T2S) for securities settlement.

References

  1. 1 2 3 "What is T2?". European Central Bank. Retrieved 24 December 2024.
  2. 1 2 3 4 "T2 and the settlement of gross payments". Banca d'Italia. Retrieved 24 December 2024.
  3. ↑ "T2". Central Bank of Ireland. Retrieved 24 December 2024.
  4. 1 2 "T2 - What is T2?". Deutsche Bundesbank. Retrieved 24 December 2024.
  5. 1 2 3 4 "TARGET Annual Report 2023". European Central Bank.
  6. ↑ Overview of TARGET (PDF), European Central Bank, July 2005
  7. ↑ "Denmark joins T2 and TIPS to fully integrate Danish krone in Eurosystem's payment services". European Central Bank. 21 March 2024.


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