STP Readiness Assessment

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More than half (51%) of the IT and business managers representing 113 financial services firms who attended a Wall Street conference on straight through trade processing in January 2002 said they have not begun upgrading their organizations' IT infrastructure and business rules for the purpose of reaching STP goals (Mearian, 2002). Among them, 41% are still evaluating how to move to STP and T+1 and the remaining 10% have not even started to evaluate their systems.

Nine challenges of implementing STP are identified and discussed below. Financial institutions can use them to self-evaluate their status. The degree to which the current operating state of a firm is different from the likely future scenario demonstrates the level of readiness the firm has for STP. The specific items in the nine challenges can be easily converted to a Likert scale checkbox form to measure the readiness of a firm's STP implementation. Firms with operations that are predominantly described by the current state situation in the nine challenges are at risk of falling too far behind in the STP "race". They may experience greater difficulty in reaping the full benefits of STP compared with their competitors who have already begun the process. Firms that begin the transformation of their organizations earlier will be able to leverage from their learning process and be ready to join the network of other STP-ready counterparts.

Challenge 1: Attain Single Point Data Capture Process

Current State

• Redundant re-entry of data in process

• Paper-based processing/execution requiring manual input

• Multiple independent front-end and back-end systems

• Entry of security master information into multiple systems in value chain and manual scrubbing of security master files

• Exception report or paper-based document to manually adjust/correct entries across multiple systems

• Multiple work streams/systems for different sub-processes

• Manual workaround for low volume specialized products

Likely Future Scenario

• Single point for all data capture - non-disparate data

• Entry of instructions occur once only in the continuous interaction cycle

Challenge 2: Fully Automated Internal Workflows

Current State

• Manual initiation of pulling executions from front to back office

• Frequent need to re-enter or re-initiate data transfer across system

• Batch files frequently used to transfer data across workflows/systems

• Specialized and unique requirements need to be manually monitored in the front, middle or back-end

• Transactions completed in batches before being relayed to next stage processing

• Frequent manual and exception processing throughout the internal process

Likely Future Scenario

• Automated and fully integrated/seamless workflow

• Limited exception-based processing and control processes

• Alerts automatically and near immediate relay for further instructions

Challenge 3: Fully Automated External Workflows

Current State

• Batch processing of transaction data across to third party systems for information interchange

• Front-end distribution channels not fully interfaced with third party systems on near real-time basis

• Back-end interface with third parties occurs at predefined intervals

• Certified records of holdings require manual intervention and frequent adjustments

• Selected domestic and international contracts requires manual fax confirmation to custodian or settlement parties

Likely Future Scenario

• Automated and fully integrated/seamless workflow across third parties systems

• Fully electronic holdings

• Alerts automatically and instantaneously relayed for further instructions

• Full and continuous electronic linkages between third party systems

Challenge 4: Practical Real-Time Processing

Current State

• Systems run on manually initiated batch process, resulting in accumulated transactions

• Notification or confirmation of transaction occurs only after batch files up-loaded, resulting in blocks of idle processing capacity

• Adoption of "end-of-day" processing practices

• Designated system will go off-line for batch transaction processing

• Momentary gaps or delays in confirmation feed between transaction event and actual processing, creating risk exposure

• Computation of asset market value based on closing prices (static) rather than actual prices (dynamic)

Likely Future Scenario

• Infrequent batch cycle needs to be replaced with practical real-time processing

• Online processing rather than off-line processing

Challenge 5: Front, Middle, and Back-Office Total Connectivity

Current State

• Cross-border transaction requires manual re-entry of instructions and re-entry of confirmation - current practice constraint by regulatory requirements

• Limited connectivity between front, middle, or back office systems

• Incompatible systems across front, middle, and back office system

• Single purpose and ridged applications built for system interfaces

• Segregation of transactions in offices to manage and control risks across departments

• Product-centric type processing in system

Likely Future Scenario

• Seamless integration within and across office systems (intranet and extranet), domestically and internationally

• Real-time risk monitoring and management systems

• Single office space concept, removal of front vs. back office separation of processing

Challenge 6: Adopt Industry Standards and Protocols

Current State

• Adoption of selected domestic industry standards in some cases, and limited application of international standards

• Messaging standards not utilizing the full capability of XML-enhanced features

• Institutions develop proprietary codes for use, often based on unsystematic code assignments or firm specific codes

• Cost of maintaining links across system without standards increases cost of links

Likely Future Scenario

• Concerted development and adoption of industry standards and protocols

• Implementation and utilization of existing and emerging industry standards to enable efficient exchange of data

• Widely adopted or emerging industry standards (Security Identifiers: ISIN, Counter-parties Identifiers: BIC, Currencies: ISO, Messaging: XML, SWIFT, FIX, ISITC, Data Standards: ISO 15022)

Challenge 7: Multilateral Interfaces with Third Parties

Current State

• Frequent use of email, fax, and phone for execution and transference of instructions between third parties

• Significant levels of manual information exchange across multi-parties in international transactions

• Manual matching/reconciliation of instructions with transactions or funds in cross-border trades

• Transaction details frequently not relayed on real-time basis (e.g., domestic trades processed overnight in batch files, international trades by ISITC files frequently during the day)

• Funds processing and clearing performed in batch modes across third parties

Likely Future Scenario

• Global adoption of emerging standards for messaging to achieve efficiency and improve cost for maintenance of linkages

• Internal systems to maintain state and share with Virtual Matching

Challenge 8: Just-in-time data enrichment

Current State

• Movement of data across networks and workflows not enriched in a timely manner; they remain in "suspension" while waiting for additional/new data to be built onto it

• Transactions process frequently remains in "suspension" during transition from a few minutes to days of elapsed time, although actual applied processing time only requires a fraction of a second

Likely Future Scenario

• Data enrichment should be made with appropriate data whilst flowing through the network

• Participants in the process will actively facilitate the virtual enrichment of data to push the transaction to completion

• Move toward a "zero latency" data transmission and fulfillment

Challenge 9: Global STP Implementation Process Capabilities

Current State

• Lack of theoretical framework to understand implications of Global STP workflows

• Evolving concepts/models across industries

• Limited exposure to STP project management capabilities

Likely Future Scenario

• Practical knowledge of robust and proven STP rollout methodology

• Ability to re-design, manage, and continuously upgrade STP infrastructure

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