As fund managers, super funds, custodians and brokers – and probably everyone else in the investment value chain – come under increasing cost pressures, straight through processing (STP) is back on the agenda for senior management. There’s industry-wide progress, but it’s slow-moving.
Matthew Stauffer, managing director and head of Institutional Trade Processing (ITP) at the industry-owned utility Depository Trust & Clearing Corporation (DTCC), says the sector is putting a renewed focus on STP because of cost pressures as well as increasing globalisation and the importance of emerging markets in investment portfolios.
“We’re transforming the ITP business because we see significant opportunity for greater automation in the post-trade space,” he said.
He was in Australia last week for DTCC’s twice-yearly DTCC client and industry forum at which post-trade settlements and other issues were discussed. DTCC, which is the major post-trade infrastructure provider globally, held a similar event in Singapore earlier in the week. The company operates in 52 markets.
“There still exist clients, in Australia and globally, that are manually sending trade allocations to their broker via email or fax,” he said, explaining that “this adds manual burden for the broker to compute”.
“That means there are more mistakes, because of re-keying and increased operational costs.” He points to missing or incomplete standing settlements instructions (SSIs), as giving rise to trade ‘exceptions’, that in turn cause trade fails. According to DTCC, it is estimated that a global failure rate of 2% translates into costs and losses of up to $3bn.
DTCC early this year launched its ‘Exception Manager’ service, providing users with a single view of all post-trade exceptions, and the ability to solve problems at source.
Stauffer said: “Post-trade exception processing often creates operational risk and a significant amount of inefficiency for all parties to a trade. Trade data needs to be consumed and processed from many disparate systems, including matching engines, trading counterparties, settlement entities and market infrastructure providers – and the related communications, which are predominantly emails, are overwhelming, cumbersome to manage and introduce risk.”
DTCC ‘Exception Manager’ was created for all parties involved in the trade lifecycle, including buy-side firms, outsourcers, broker/dealers, custodians, prime brokers, clearing brokers and other settlement agents.
Stauffer said: “It centralizes and standardizes exception processing to enable faster resolution, delivering a significant reduction in the number of exceptions and supporting exceptions in trade validation and settlement processing.”