"I'm OK, You're (Probably) Not": STP Survey Casts Doubts

February 24, 2003 (PLANSPONSOR.com) - Nearly two-thirds of senior financial services executives responsible for trade processing say they will be ready for straight through processing (STP) by the end of 2004 - but seem to have little confidence in their industry counterparts to meet the same goal.

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.

Trade Settling?

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.”

Spending Patterns

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.