T2S financials: status update

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Edgar Hunter
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1 0 T2S financials: status update T2S Advisory Group Frankfurt am Main, June 2014 T2S Programme Office European Central Bank Item 5.1

2 T2S financials: status update Eurosystem s reporting obligation Obligations of the Eurosystem related to the provision and use of the T2S Services For the provision and use of T2S Services, the Eurosystem shall provide the Contracting CSDs and the NCBs with financial statements, reports and other information on T2S on a regular basis that fairly represent the business and financial conditions, result of operations and state of the cost recovery in relation to T2S on the respective dates or for the respective periods covered by such financial statements, reports and other information * * Cf. T2S Framework Agreement, article 20, point 1. f) and Currency Participation Agreement, article 16, point 1. h) (Obligations of the Eurosystem related to the provision and use of the T2S Services) 1

conditions, result of operations and state of the cost recovery in relation to T2S on the respective dates or for the respective periods covered by such financial statements, reports and other

3 2 T2S financials: status update Content T2S financial equilibrium T2S financial situation Change requests and future developments T2S settlement volumes

4 3 T2S financial equilibrium Current situation Cost recovery period: 8.75 years Investment cost: millions Running costs/year: 64.6 millions Volume estimates Initial assumption on volume growth: : 4.7% p.a onwards: 6.3% p.a. Starting point 2010: million instructions Capital costs: MRO-related Prices T2S price list basis: 15 cents per instruction Contingency reserve: per DVP instr. 1 cent

6 millions Volume estimates Initial assumption on volume growth: 2010-2012: 4.7% p.a. 2013 onwards: 6.

5 4 T2S financials: status update Content T2S financial equilibrium T2S financial situation Change requests and future developments T2S settlement volumes

6 5 T2S financial situation Total costs (updated: March 2014) T2S financials Development cost (total) 4CB ECB Others Running cost (average annual) 4CB ECB Others (liability insurance, RTGS fees) Contingency reserve (total) Capital cost (total)** N.B.: Figures might not add up because of rounding effects. Envelope (EUR millions) Change from 2012* (EUR millions) * Vis-à-vis figures reported to the AG on 28 November ** Estimated under the assumption that future cost of capital remains at the average of the last five years annual average (cf. slide 7).

Envelope (EUR millions) 400.5 298.0 100.3 2.3 64.6 51.8 10.5 2.3 45.0 40.3 Change from 2012* (EUR millions) +1.8 +1.3 +0.3 +0.3-0.3-0.5 - +0.2 - -27.

7 6 T2S financial situation Actual expenditure T2S financials Development cost (total) 4CB ECB Others N.B.: Figures might not add up because of rounding effects. Envelope (EUR millions) Actuals at Q1 (EUR millions)

ECB Others N.B.: Figures might not add up because of rounding effects.

8 7 T2S financial situation Cost of capital The cost of capital is linked to the annual average Main Refinancing Operation (MRO) rate; Capital cost accumulated by end 2013: EUR 1.09 million; The speed of accumulation of the cost of capital depends on the future trends of the MRO rate (non-predictable).

9 8 T2S financials: status update Content T2S financial equilibrium T2S financial situation Change requests and future developments T2S settlement volumes

10 Inclusion of Change requests From AG follow-up action list: Provide more detailed explanations on impact of change requests on T2S pricing From a financial perspective, change requests are assessed for development costs and maintenance and running costs. These costs are cumulated in costs pot which is the target of cost recovery. After the end of migration, CRs to be implemented will be bundled together in periodical releases. The cost of each release will be separately added to the T2S pricing envelope. For the recovery of the costs of each release, it will have to be evaluated whether to adopt a price increase or an extension of the cost recovery period (Cf. T2S FA, Schedule 7 Pricing, 5.3 T2S Common Changes). The total costs for CRs approved after the signature of the T2S Framework Agreement (April 2012) and by the end of 2013 are*: total development costs: EUR 0.77 million; and average yearly maintenance and running costs: EUR 0.06 million. * The costs relating to the additional test environments (CR-339) are not included in this calculation as they were already agreed at the time of the signature of the FA though formally approved shortly after. 9

After the end of migration, CRs to be implemented will be bundled together in periodical releases. The cost of each release will be separately added to the T2S pricing envelope.

11 T2S financial situation Future developments As live operations are approaching, a revision of the 4CB cost offer is expected before the end of 2014 which might have an impact on the running costs. A second revision is expected after three years of operations. Platform sizing System usage Change requests Cost review 10

12 11 T2S financials: status update Content T2S financial equilibrium T2S financial situation Change requests and future developments T2S settlement volumes

13 12 T2S settlement volumes Actual traffic reported by T2S CSDs and AG expectations Total figures for 2013: 133 million transactions reported* increase by 6.3% over the total for 2012 Deviation from the initial volume projections for 2013: -20.1% * The figure is adjusted for CCP effects and intermediate layered model participation in T2S.

3% over the total for 2012 Deviation from the initial volume projections for 2013:

14 13 Thank you for your attention

CLARIFICATIONS ON THE T2S PRICING POLICY

T2S PROGRAMME BOARD ECB-UNRESTRICTED 9 March 2012 09.04.01/2012/002625 Item 4.2 CLARIFICATIONS ON THE T2S PRICING POLICY Introduction During the ad-hoc meeting with CSDs on 16 February 2012, it was agreed