Liquidity management

T2S allows payment banks to open one or more DCAs with a national central bank of their choice, including in a situation where securities are deposited with several CSDs, outside the central bank’s jurisdiction. This is intended to optimise liquidity management for securities settlement. A party may open one or more DCAs, depending on the structure deemed most appropriate to its business (own account, for clients, etc.), with one or more central banks.

DCAs are provided with funds through TARGET2, so a DCA must be linked to a main RTGS account. DCAs are credited from RTGS accounts in TARGET2 at the start of the business day and may also be credited with liquidity throughout the business day. The cash positions of RTGS accounts and DCAs may be tracked in real-time to check movements between accounts and settlement-related movements.

At the end of the operating day, DCAs in T2S must be swept, i.e. positive DCA balances are transferred into RTGS accounts in T2. The DCA of a payment bank cannot have a negative balance.

Collateralisation

The automated collateralisation mechanisms in T2S allow payment banks to obtain liquidity from a central bank or a payment bank client to obtain liquidity from a payment bank, in exchange for eligible securities.

There are two types of collateralisation:

• Central bank auto-collateralisation granted to payment banks
• Client collateralisation offered by payment banks to their clients..
   

Central bank auto-collateralisation

The auto-collateralisation functionality allows eligible counterparties to benefit automatically in T2S from intraday credit for securities settlement, in exchange for the provision of collateral, to facilitate trade settlement in real time.

This enables T2S to achieve better settlement rates than a settlement system not offering such a functionality, by reducing the number of failed instructions.

Auto-collateralisation also makes it possible to reduce liquidity on DCAs during the night-time settlement period and during the business day: night-time settlement will be conducted, even in the absence of liquidity in DCA accounts, against the provision of collateral.