Abstract
The financial services industry is in the midst of transformation. Straight Through Processing (STP) is one of the major initiatives currently under way in developed securities markets. STP strives to reduce the trade transaction settlement cycle. STP is expected to reduce transaction processing risk and cost and may offer opportunities for value-added products and services to customers.
Indian government has announced its intention to reduce the settlement cycles from (T+3) to (T+2) and eventually to (T+1) over the next few years. The Securities and Exchange Board of India (SEBI) has been asking the Indian securities industry to implement STP which is characterized by significant real time virtual processing with concurrent information exchange.
Implementation of STP has many strategic angles. The players would see STP as a project investment and would be motivated only if there are gains commensurate with risks. All players are unlikely to benefit evenly. Some players are further along the learning curve than others. There are multiple messaging standards and software making interoperability a difficult issue to resolve to everyone's satisfaction.
Successful implementation of STP would result in a quantum jump in the way security market transactions are processed in India. But, it is a challenging task. This colloquium was arranged to discuss the main issues as seen by the market participants in the securities industry in India.
The panel members addressed the following issues: What is STP? What kinds of benefits from STP have been realized in the global markets? What are the challenges of implementing STP in the Indian securities market? The
salient features of the responses are as follows: At present, different entities in the security transaction processing work use
different systems. There is no synchronization of data. In developed markets, much
progress has been made in eliminating this roadblock. In India, we should address
this issue quickly to realize the benefits of STP. STP implementation in each entity has two elements - streamlining external
processes (external STP) as well as internal processes (internal STP). Benefits of STP arise from operational efficiencies, productivity gains, and also
from improved customer satisfaction. The biggest challenge for STP is to ‘determine the best approach.’ This dilemma is
further complicated due to the two elements of STP strategy: internal STP and
external STP.