STP in Financial Services - Some Myths
By Sunil Kumar Kolangara
October 1, 2003

Summary: Is the business case for STP still valid and what should be the key elements in an STP strategy? Sunil Kumar Kolangara looks at the importance of STP, and explodes a few of the myths associated with it.

Full Text (Page 1 of 3)  

Introduction

Straight through processing had been a subject of keen interest in the securities industry over the past few years, and as such received a lot of attention from market players, IT vendors and service providers. One of the key drivers of this interest was the T+1 initiative, originally conceived by SIA, the American Securities Industry forum, to address potentially increasing trading volumes in the US securities market. Of late, with the shelving of the T+1 initiative and the indifferent post-9/11 business climate in the financial services industry, STP plans appear to have been relegated to the backburner.

Is the business case for STP still valid and what should be the key elements in an STP strategy? This article takes a look at the subject of STP by attempting to underline its importance, and in the process exploding a few of the myths associated with it.

1. STP is about T+1

One of the biggest myths is that STP was all about T+1 and thus, with the indefinite postponement of that initiative in the US markets, no longer an important initiative.

But STP does not just concern the US securities companies but pervades the entire globe and gamut of financial services processes, not just the trading and settlement related processes.

A typical securities firm's back office is characterized by multiple applications at various stages of their useful lives and not necessarily 'talking' with each other. Therefore STP would come to mean:

* Streamlining operational infrastructure (internal STP)
* Readying for connectivity with trade participants and matching utilities (external STP).

It is external STP that has lost attention following the postponement of the T+1 initiative. The case for internal STP is still alive, and expected to account for 50-70% of budgets for STP. Also, a company pursuing STP in its trading applications is also preparing itself for a more demanding time frame for trade settlement, the demand for which will eventually arise once the financial markets recover.

2. STP equals process automation

By definition STP envisages a seamless, automated and integrated transaction-processing environment. This cannot be achieved by just automating existing business processes. As is seen even in highly automated back offices, not all processes are at their most efficient due to duplication. Also existing automation, in most cases, will not maximize overall business process efficiency. So it is not possible to crash processing time further by increasing automation.

An STP program defines the 'to-be' processes, which will help achieve specified business objectives. This necessarily involves redesigning underlying processes and in the process opens up new routes to automation. STP therefore goes beyond process automation and in fact will involve reengineering of business processes.