Straight Through Processing - STP

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Straight-through processing STP [1] is an initiative used by financial companies to speed up the transaction process. This is performed by allowing information that has been electronically entered to be transferred from one party to another in the settlement process without manually re-entering the same pieces of information repeatedly over the entire sequence of events.

The goal of STP is simple — reducing the time it takes to straight through processing trading options a transaction will increase the likelihood that a contract or an agreement is settled on time. STP was invented in the early 90s by James Karat in London to describe automated processing in the equity markets.

It was also used around the same time by SWIFT, the banking cooperative, to describe automated processing in the payments arena. Karat cites the reason for developing the system as simple. The process before STP was very antiquated: The order was invariably scribbled and mostly unreadable. Upon receiving the order, the trader would execute on the market a usually incorrect investment.

The runner picking up the ticket in this case, Mr Karat would input the order into the system to send out a contract note. For example, if the client wished to purchaseshares, but the trader only executed 10, the runner would send out the contract for 1, In those days, there was a T10 settlement so any errors were "fixable". However, with the new introduction of T5, the settlement arena changed, and STP was born. The concept has also been transferred into other sectors including energy oil, gas trading and banking, and financial planning.

Currently, the entire trade lifecycle, from initiation to settlement, is a complex labyrinth of manual processes that take several days. This means investors who are selling a security must deliver the certificate within two business days, and investors who are buying securities must send payment within two business days.

But this process comes with higher risks through the occurrence of unsettled trades. Market conditions fluctuate, meaning a two day window brings an inherent risk of unexpected losses that investors may be unable to pay for, or settle, their transactions.

Industry practitioners, particularly in the US, viewed STP as meaning "same-day" settlement or faster, ideally minutes or even seconds. The goal was to minimise settlement risk for the execution of a trade and its settlement and clearing to occur simultaneously. However, for this to be achieved, multiple market participants must realize high levels of STP. In particular, transaction data would need to be made available on a just-in-time basis, which is a considerably harder goal to achieve for the financial services community than the application of STP alone.

After all, STP itself is merely an efficient use of computers for transaction processing. Historically, STP solutions were needed to help financial market firms move to one-day trade settlement of equity transactionsas well as to meet the global demand resulting from the explosive growth of online trading. Now the concepts of STP are applied to reduce systemic and operational risk and to improve certainty of settlement and minimize operational costs.

There is often confusion [ according to whom? When fully realized, STP provides asset managersbrokers and dealerscustodiansbanks and straight through processing trading options financial services players with tremendous benefits, including greatly shortened processing cycles, reduced settlement risk, and lower operating costs. Other analysts, however, believe that STP will be achieved with the emergence of business process interoperability.

Correct Link for reference 2 is below http: From Straight through processing trading options, the free encyclopedia. This article needs additional citations for verification.

Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. May Learn how and when to remove this template message. Retrieved 16 February straight through processing trading options Securities and Exchange Board of India. Retrieved 1 Straight through processing trading options Retrieved from " https: Articles needing additional references from May All articles needing additional references All articles with specifically marked weasel-worded phrases Articles with specifically marked weasel-worded phrases from November Views Straight through processing trading options Edit View history.

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