As decided by the Governing Council of the ECB in November 2010 (see press release), the delivery-versus-payment (DvP) price for T2S will be set at 15 cent per instruction. This price will be fixed for the period from September 2014, when T2S will go live, to December 2018, provided that the following conditions are fulfilled:
This pricing decision remains consistent with the principle of full cost recovery, while also coinciding with the objective that T2S has always pursued, i.e. to achieve a settlement fee that is lower than any current domestic fee, even if the cost of CSDs are added to the T2S fee.
The T2S Programme Board acknowledges that there are many unknowns regarding future developments, which make a price guarantee beyond 2018 difficult. There are, however, factors suggesting more positive developments, in particular the probable increase in volume due to dynamic effects generated by T2S. Moreover, the Programme Board is confident that the volume generated by non-euro currencies will be significantly higher than 20% of the euro traffic. As a result, the T2S Programme Board believes that the upside effects are significantly stronger than the downside risks and emphasises its objective to further lower settlement fees beyond 2018. Nevertheless, in order to provide assurance to market participants about T2S prices after 2018, the Governing Council has also made a commitment not to increase the T2S fees by more than 10% per year between 2019 and the end of the cost recovery period, i.e. September 2022.
One of the guiding principles of T2S is that it should fully recover its development and running costs, namely:
To this end, in early September 2010, the T2S Team presented the T2S Advisory Group with different scenarios for a provisional price calculation that take account of the various geographical reaches of T2S and of different cost recovery periods. The result of this mathematical exercise was a proposed price range of between 12 and 24 cent. The T2S Programme Board then asked the T2S Advisory Group for its advice in defining the pricing policy for T2S.
In light of the market feedback, the T2S Programme Board decided to refine certain parameters for its T2S pricing proposal, which then formed the basis for the decision made by the Governing Council in November 2010.
The T2S Programme Board has decided to propose that 75% of T2S revenues are generated from settlement services and 25% from information services. This share of revenues from settlement services is still high in comparison with current market practice but reflects a compromise between different views expressed by market participants.
The September pricing proposal contained two options for the cost recovery timeframe: i) within six years of full operation (and one year migration); or ii) within seven years of full operation (and one year migration). Given that the software underlying such market infrastructures is normally operational for a very long time before the advent of a new software generation, the T2S Programme Board has decided to propose a cost recovery period of seven years of full operation (and one year migration).
The September proposal contained five different scenarios regarding the currency coverage of T2S. However, the T2S Programme Board considered that it was more appropriate to separate the pricing proposal from the participation of specific non-euro currencies. It has therefore made the conservative assumption that non-euro currencies would add only 20% in terms of settlement volumes, compared with euro volumes.