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The financial services industry is on the precipice of great change. The industry has recognized that it needs to move from today’s sequential processing into a more streamlined process defined by the principles of straight-through processing (STP) — more automated processing, less manual intervention and redundant data entry. The drivers to achieve STP come in many forms —- globalization, the industry move toward shorter settlement cycles, the looming regulatory requirement for a T+1 settlement cycle, technological convergence, the migration from cross-border to no borders, and exploding trading volumes, cost reduction and the rise of eBusiness.
All of these forces are combining to drive the financial services industry toward a confrontation with the future. That confrontation is coming fast, and will mean that existing systems cannot be retrofitted or fine-tuned to meet the new demands. The Securities Industry Association's (SIA's) institutional transaction processing white paper calls for systems to be re-architected to work in a new processing model that would allow for seamless, real-time matching of trade data throughout a trade's lifecycle.
All of this puts immense pressure on the middle and back offices. One of the key responses to these pressures is the move to STP — the seamless delivery of financial transactions to all parties and counterparties, from investment management to reconciliation without manual handling or redundant processing.
On one side we find the drivers — service, risk, cost, eBusiness, regulations and efficiency demands. In the middle are the enablers — the SIA, Thomson Financial/DTCC, Global Straight Through Processing Association (GSTPA), SWIFT, and new standards and protocols like FIX and XML. The pressure of the drivers in conjunction with the capabilities of the enablers should produce the full promise of STP: reduced risk and fewer fails, T+1, the ability to handle unprecedented volume, increased cross-border trades and an industry positioned for growth.
While it is too soon to say that the industry is fully committed to achieving STP, our industry experience shows us that most companies are somewhere along a four-stage continuum. The first stage is awareness; the second, assessment; third is analysis and planning; and fourth is full implementation. However, the road to STP is not always straight, and many industry players are finding barriers to overcome.
To gain an understanding of the industry's status on this road — and the drivers and barriers to STP execution — we surveyed more than 100 industry professionals at the December 2000 Industry Standardization for Institutional Trade Communication - International Operations Association (ISITC-IOA) conference. We used real-time, interactive balloting to ask investment managers, custodians, broker/dealers and vendors a range of questions on their plans for STP implementation, their preparedness and the drivers and barriers they faced. We found some surprising — and some not-so-surprising — results, confirming our opinion that although the industry is moving toward STP, certain barriers may prevent companies from realizing it in the timeframes they envision. Firms are looking for greater clarity on industry solutions for central matching solutions. In addition, the high cost of implementation and the fragmented nature of the industry solutions give them pause in implementation.
