By Sinead Cruise, Amanda Cooper and Francesco Canepa
LONDON/FRANKFURT (Reuters) – The European Central Bank said on Thursday its system that handles $1.9 trillion a day in transactions across the region was suffering an outage, leaving banks and companies scrambling to figure out the potential impact.
The Bank of Greece, one of the 24 central banks that uses the system, said the outage meant interbank fund transfers were “not currently possible”.
The ECB said an emergency channel was still open for “very critical payments”.
The pan-European TARGET 2 Securities (T2S) platform, which is used to complete trades in cash and securities across the 24 countries that share the euro, along with the central banks and the ECB itself, reported a glitch in its communication channels, but did not offer more specifics.
Trading sources said communications had been disrupted and the status of trades since the outage was reported remained unclear.
The problem affected critical communications between central securities depositories (CSDs), the basic plumbing of financial markets.
Market participants usually communicate with T2S via their CSD or central bank.
Michael Thomas, a partner at Hogan Lovells’ financial services team and market structure expert, said the incapacity of the settlement system could have a wide variety of potential consequences.
“Where there are chains of transactions, where each leg is dependent on settlement of each other leg, a break in the chain can affect the whole series of transactions,” he said.
“The longer the delay, the greater the impact on liquidity in the financial system, where cash cannot be realised because securities transactions are not able to settle, meaning that cash is not available for other purposes,” he said.
According to the ECB’s website, any issues with the T2S system in the past couple of years have typically been resolved relatively quickly. Thursday’s outage was reported at 0730 GMT and was still continuing by 1540 GMT.
“The Eurosystem is taking all measures necessary to resolve the incident as soon as possible,” the ECB said, promising a further update at 1600 GMT.
European stock, currency and bond markets appeared to be trading normally, according to LSEG data.
Settlement on trades takes two working days, which might mean disruption may not show up until early next week.
One London-based trader said their team had little precedent for such an outage, with the ECB under extreme pressure to restore operations before the 1600 GMT cut-off.
Central counterparties, or clearing houses, ensure that a stock, bond or derivatives transaction is completed. The final leg of a trade, known as settlement, is conducted by the CSDs.
One CSD, Clearstream, said on its website that settlement of euro securities would be delayed,
Others including Euroclear did not immediately respond to a request for comment from Reuters.
A person familiar with the matter said some Euroclear clients might see delays in the processing of their transactions.
(Additional reporting by Lucy Raitano and Samuel Indyk in London and Lefteris Papadimas in Athens; Editing by Harry Robertson, Peter Graff, Kevin Liffey, Alexandra Hudson)
