Integration and straight-through processing (STP)

STP would help us reduce losses where the buy and sell orders are either mismatched or lost. STP can reconcile trades and place them in accounts automatically by software packages. It would be admirable to have fast turnaround and cut down mistakes on trades. Trade processing errors can be costly, and they can be cut out using STP. Exceptions are costly; automating exceptions when processing trades can reduce costs by 25 %. Yet only 30 % of 500 financial institutions surveyed have fully automated exception reporting.7 STP will help us detect errors within our bank or fund, but will STP ever be implemented?
STP is the ideal sold by many systems vendors. But, in the real world where a front office may have a 100 IT systems and subsystems, STP may be part of the Holy Grail. The prospect of no accounting errors or orders mismatches is not borne out by reality. If an accounting error creeps in, how are we to flag it or reconcile it? It would be wishful thinking to wave a magic wand over the risk elements of fraud, mismatched orders and operations mistakes.
The idea of STP convey seamless processing between all three stages or departments, without any hitches or significant delays. There is no universal IT package that will fulfil all functions in the front, middle and back office. Reality offers that one system vendor will eventually be called into the bank or fund and be instructed to connect its new system to all the existing legacy systems. This means that we are looking at a reduction of the number of IT systems and subsystems instead of an agglomeration under one “Big Brother” system. A bank may think of buying a “vanilla” IT package, but they really come in many different flavours.
The systems market is diminishing with the cut-backs in financial institution expenditure and more banking M&A. This means further cuts in the choice of systems suppliers. Choose one that survives.
Algorithmics, Barra, Sungard, eRisk, Pareto et al. are financial system vendors that offer “risk management” systems in one form or another. A web trawl can reveal a hundred names or more for systems providers. All systems suppliers write one IT system and hope to resell it many times. Their profits lie in amending previously written systems, not in tailoring each one from scratch for each customer. They are the greatest recyclers of our time.
For example, Reuters, Barra or Sungard should stress that there is no bog-standard “one- size fits all” package. Theirs is an adaptable systems tool-kit backed by a bespoke consultancy service that includes tailoring to the business and portfolio of the specific bank or fund manager. A company may buy a systems package with a fixed price, but have to add 300 % for the amendments, project implementation and support services.8 Even then, project success is not guaranteed in any way.