Less than half expected a majority of broker/dealers or custodian banks to meet the 2004 target (47% and 41%, respectively), while only about one-in-five (21%) thought most investment management firms would be able to implement STP by year-end 2004, according to Building the Efficient Financial Services Firm: Straight Through Processing Survey, released by the Financial Services Industry practice of Deloitte & Touche LLP.
STP is an initiative within the financial services industry to automate the trade process, from initiation to execution to settlement, to support the real-time access and processing needs of a fully automated, integrated environment, according to Deloitte & Touche. The Securities Industry Association recently postponed a 2005 deadline that required financial services firms to settle trades within a day after the trade has been executed (generally referred to as “T+1”).
Despite the postponement of the T+1 deadline, roughly three-quarters (74%) of executive respondents say they are still as – or more – committed to STP. Still, notwithstanding the interdependency of STP, more than half (53%) of executives opposed mandating STP. A potential reason? More than half (56%) believe shortening the settlement window to T+1 will increase overall risk.
Dawn Patterson, principal and co-leader of Deloitte & Touche’s STP practice, noted: “Because T+1 calls for financial services firms to be both internally and externally ready – and relies on all industry participants to be so – executives may have concerns about the risk they face when interacting externally with other market segments.”
However, the commitment to STP is evidenced by spending patterns, where nearly 40% of responding firms say they will spend more than $1 million on their STP initiatives, while 37% said that an additional $1 million – or more – would be committed to settling on T+1. At larger firms, those with more than $100 billion in assets under management, 59% of executive respondents expect their firm to spend more than $5 million to achieve STP. A quarter of these executives expect their firm to spend an additional $10 million or more to achieve T+1.
Still, more than half the executives said that their STP initiative was not well integrated with several critical activities and functions, including:
- 67% – financial reporting
- 67% – customer service and information
- 57% – compliance/regulatory
- 57% – portfolio analysis
Deloitte & Touche and Bayer Consulting conducted email and telephone interviews with senior executives responsible for trade processing at investment management firms, broker/dealers, and custodian banks from September 18 to November 1, 2002. Interviews were completed with 90 executives, 58% from investment management firms, 26% in broker/dealers, and 16% in custodian banks.
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