Straight Through Processing (STP) is a system that facilitates faster and smoother processing of transactions in stock markets without manual intervention.
This is how a typical trading day
at an institutional fund house
is like—the details of the trade
that has been executed during the day
will be sent to the custodian, which on
the other hand, will match it with the
client instructions that they receive
through the broker of the fund house.
If on verification of the details, the
custodian finds that the details sent
by the fund house and the broker do
not match, it causes delay in settlement
and clearing of the transaction.
The reason for this kind of disarray is
multiple manual data entry at the
broker, client, and custodian’s end,
which leads to errors and trade failures.
Studies have shown that the
percentage of global failed trades due
to unmatched trade data is around
15% of total trades, which in monetary
terms is in billions of dollars. To
avoid this kind of a shortfall, there is a
need for a system that can provide
seamless integration of trades from
initiation to settlement without any
manual intervention.
STP aims at
achieving exactly this.
STP, the electronic processing
mechanism that will allow the market
players to do away with paperwork,
has been introduced by the Securities
and Exchange Board of India (Sebi).
This has been done for institutional
transactions from July 1, 2004 to reduce
the time and cost of trades. Prior
to this, STP was launched in India on
November 30, 2002 and the market
participants used the system on a voluntary
basis. On reviewing the
progress and working of STP, Sebi has
found that there was a lukewarm response
from the participants with
STP trades accounting to less than
10% of total trades. Hence, in order to
get the Indian capital markets at par
with global markets, Sebi has decided
to introduce the system in full
throttle.
In effect, this system allows all the
related parties of the transaction—
the investor, the broker and the custodian
to get hooked together and assists
in faster and error-free flow of
information in a seamless manner.
The removal of manual intervention
and introduction of maximum automation
facilitates minimizing human
errors, fewer trade fails, increased
speed of operations, increase in crossborder
trade, greater transparency
and above all lends a competitive advantage
to markets. |
