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05:02 PM
Gary Probert
Gary Probert
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Reaching 100% STP - Why Not? Why Now?

Firms have grown too complacent and comfortable with the STP they have achieved and thus are not pursuing the greater goal of 100 percent STP across all asset classes.

Gary Probert
Twenty years ago, the financial services industry faced the surmounting challenge of achieving straight-through-processing, as an escalating number of trade failures and errors began to materially impact the business. At the time, the primary focus was to move from a T+5 environment to T+3. It was at this pivotal moment that ISITC was founded by a group of the largest custodian banks, investment managers, broker-dealers and vendors to figure out how exactly the industry as a whole could better achieve STP. The industry, working collaboratively in many areas, made several key breakthroughs and were able to achieve T+3 and better STP in a number of asset classes. But there is still more work to be done.

To reach true, 100% STP is a journey - however, as a collective industry, we have come to a near grinding halt. Firms have grown too complacent and comfortable with the STP they have achieved and thus are not pursuing the greater goal of 100% STP across all asset classes; even the processing of equity trades, with ever increasing volumes, has yet to reach this goal. Too many times we hear the excuse that the continued pursuit of true STP is "time-consuming" and "expensive." Now, however, we cannot afford to be too comfortable. Now is the time when firms across the industry, buy-side to sell-side, vendor to end user, must collectively work together to push toward true STP.

Why? Regulatory reform and changing market structures are remaking Wall Street as we know it. More than ever, the demand for transparency has reached its height; regulators and Main Street are clamoring to know what firms are doing, why they are doing it, and at what cost. The financial services industry and its primary constituents must make a concerted effort to examine the gaps in our processes and move to automate processes for all security types for all participants. Settlement cycles continue to shorten and cross-border transaction volumes continue to grow.

So how we do it? We encourage people to stop being bystanders and become active participants in industry efforts to improve best practices. Without the full participation of firms, we as an industry are hampered in our ability to improve our processes and achieve true STP. If some firms in the industry adhere to certain data standards while others choose not to, the synergy of cooperation in centralized standards is lost, and although we achieve some efficiency, we lose the exponential benefit associated with an entire industry utilizing one standard and agreed-upon best practices. While desire to increase STP will always be an individual firm's choice, collaborative efforts have shown to be successful in the past. STP is much more than a convenient marketing term; it is by definition multi-faceted, encompassing a broad series of interlinked events and counterparties. STP = Cost. The cost of being process inefficient, of not meeting client expectations, the cost of not being compliant with rules and regulations, the cost of reputational risk. STP brings transparency in all these aspects.

This isn't an entirely "group-think" initiative - it is in firms' best interest to participate in any and all industry initiatives to develop best practices for STP. If we were able to peek under the hood of an organization and calculate the total impact of inefficiency, we would be shocked by the sheer amount of wasted cost and resources associated with failure to reach STP. These escalating costs and inefficiencies will catch up to an organization at a point not too far off in the future. Before we reach that point, we must take cost out of the equation and look at how STP can not only improve the industry as a whole, but bring benefits to our own respective firms.

As we emerge from the recession and examine a new financial regulatory landscape, the financial services industry should and must put STP back on the agenda. We encourage individuals and firms to become active participants in forums and organizations such as ISITC to share their challenges and perspectives. STP is not just an aspiring goal to reach some time in the next 20 years. It should be the industry's goal for 2011. This is the year in which we need to focus again on STP. This is the year for change.

About the Author: Gary Probert is a Managing Director at Citi where he has held a number of senior roles over the past 11 years. Gary has been involved in numerous Industry initiatives and is Chairman and CEO of ISITC, an organization which promotes operational standards and markets practice for Investment Managers, Custodian Banks, Broker Dealers and Industry Infrastructures. Gary is also a long-serving co-chair of Omgeo's Americas Advisory board.

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