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In global capital markets, the trade processing cycle has historically been imbued with inefficiencies endemic throughout the entire flow. Depending on product, the trade life cycle can touch a variety of key participants, beyond just the immediate parties, to include brokers, exchanges, industry utilities, custodians and servicing agents. As a result, even before the notion of electronic business-to-business (B2B) communication was in vogue, the financial services community had engaged in some form of inter-enterprise integration. The limits of this “integration,” however, have often been subject to the use of handwritten blotter tickets, individual spreadsheets, faxes and a myriad of disintegrated stovepipe systems, evident at all points in the cycle.

Straight-through processing (STP) is the industry’s lingua franca for system integration and the basis on top of which a compressed T+1 settlement will ultimately be delivered. Even without T+1, now delayed until 2005, the net benefits of STP, behind the firewall and beyond, remain irrefutable. An amalgamation of greater trading volumes, shortened settlement cycles, increased product complexity, additional regulatory oversight and reduced margins clearly demands more streamlined integration, throughout the entire trade life cycle. Here, STP nirvana offers greater systemic efficiencies, resulting in lower operating costs for most participants, along with reduced market and operational risk. In addition, some forward-looking firms recognize STP as a mechanism through which to deliver new products and services to clients.

Yet, while everyone recognizes the fundamental importance of STP, its adoption has been slow and arduous, typically characterized by a lack of cooperation between major industry utilities and foot-dragging on the part of many investment firms. Messaging standards, like FIX in the front office and SWIFT in the back office, have certainly helped promote electronic trading and STP between participants, but their use is not nearly as pervasive as is needed, and the standards address only a subset of functional requirements.

Despite the newly extended 2005 deadline for T+1, some firms, heavily invested in aging, poorly integrated legacy systems may find themselves in a mad scramble to adapt or augment their capabilities to meet new regulatory requirements, real-time or near real-time trade flow, increased product complexity and evolving customer demands. The truth is, beneath the corporate veneer, even large global participants draw on a disintegrated collection of stovepipe applications--some only as sophisticated as desktop spreadsheets--to handle various product and operational requirements. Operating cost, risk management and compliance, to name a few, ultimately suffer.


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