ANNUAL REPORT 2008 - Polymer Bank Notes of the World

area NCBs and national TARGET2 usergroups in 2008. In addition, joint meetings ofthe Eurosystem Working Group on TARGET2and the TARGET Working Group of theEuropean banking industry took place regularly,at which TARGET2 operational issues werediscussed. Strategic issues were addressed inthe Contact Group on Euro Payments Strategy,a forum composed of senior representatives ofcommercial and central banks.THE CONNECTION TO TARGET OF NON-EURO AREACOUNTRIESAll euro area countries participate in TARGET,as its use is mandatory for the settlement of anyeuro operations with the Eurosystem. TARGETis also available, on a voluntary basis, to noneuroarea Member States to facilitate thesettlement of euro-denominated transactions inthese countries. 4 When Cyprus and Maltaadopted the euro on 1 January 2008, the CentralBank of Cyprus, the Central Bank of Malta andtheir respective national user communities werealready using the TARGET system. In thecontext of Slovakia’s entry into the euro area on1 January 2009, Národná banka Slovenska alsojoined the system.FORTHCOMING DEVELOPMENTSIt is foreseen that a new release of the SSP willbe made available each year, offering a range ofenhancements and new features to TARGET2users. The content of these annual releases willbe defined following a broad consultation of theuser community. The first annual release of theSSP went live on 17 November 2008. Its contentwas mainly driven by the new SWIFT standardrelease, which went live on the same day. As anexception, two releases are scheduled for 2009.The first one, in May, will enhance the interfacewith ancillary systems, in particular allowingsettlement across central securities depositories(CSDs). The second release, in November,will incorporate various other enhancementsrequested by users.2.2 TARGET2-SECURITIESThe European securities settlement marketis still highly fragmented, although somepositive developments in the form of increasedconsolidation and cooperation have beenobserved. The existence of a large number ofsettlement systems, among other things, meansthat settlement costs are much higher for EUcross-border transactions than they are fordomestic transactions or for transactions in theUnited States. At the same time, demand foran integrated European securities settlementinfrastructure is increasing.T2S was proposed by the Eurosystem in 2006as a solution to the existing fragmentationof the settlement infrastructure. It will be amulti-currency settlement platform, owned andoperated by the Eurosystem, which will enableEuropean CSDs to settle securities transactionsin central bank money. The participatingCSDs will maintain legal relations withtheir customers and will continue to performcustody and notary functions. T2S will providea single technical platform where all EUsecurities can be exchanged for euro and otherparticipating currencies through standardisedprocesses and means of communication.Furthermore, T2S will significantly reduceparticipants’ liquidity needs and financialrisk exposure by providing facilities such asauto-collateralisation (i.e. automated generationof an intraday credit in central bank moneyagainst collateral when the buyer has insufficientfunds to settle securities transactions),continuous optimisation, recycling mechanismsand a night-time settlement window. Moreover,being able to settle all EU securities transactionsin central bank money on one single platformwill eliminate the financial risk exposurethat participants may currently encounter in4 Throughout 2008 the non-euro area countries connected toTARGET were Denmark, Estonia, Latvia, Lithuania and Poland.114 ECBAnnual Report2008