Plugging the gaps in STP

Two new offerings from SunGard deliver real benefits to clients by increasing STP rates

In an article written for Wall Street & Technology back in October 2002, SunGard made the following assertion: “Straight through processing (STP) is a strategic imperative today and is required by all financial institutions in order to achieve operating efficiencies, and reduce costs and operational risk.” It added: “STP can be achieved today within an institution by integrating its heterogeneous systems environment in the front and back office. STP can also be achieved today by seamlessly connecting the systems on the buy-side with systems on the sell-side and with settlement agents.”

Moving forward seven years to 2009, it is clear that STP is no longer just an operational imperative: in such a competitive environment as the financial markets, it is often a real business differentiator. But it is not always as easy to achieve as might be thought, for numerous reasons.

The allocation of trades by the sell-side to their client accounts is an example of where true full STP has sometimes been difficult to achieve. The end-client frequently wishes to have an order allocated to numerous complex accounts, and this has to be done swiftly. For exchange-traded instruments, particularly derivatives, this information also has to be sent to the clearing house to ensure efficient and accurate margin management.

Manual intervention is costly

This complicated process has often required a high degree of manual intervention. This is not only costly, but also potentially introduces operational risk. SunGard’s global trading business has recently launched a new application – the GL Stream Allocation module – to overcome many of the issues around allocation. GL Stream Allocation, which has already been installed and is working successfully at a major global full commission merchant, receives details of all orders and executions directly from GL Win and GL Stream trading workstations. These may have pre-defined instructions attached to them, or the system can automatically add allocation messages before the deals are processed through the middle and back offices.

The module is capable of handling a wide range of allocation types. These are:

• Pre-Allocation
• Pre-Trade
• Post-Trade Simple Allocation
• Allocation of a Part-Filled Order
• Post-Trade Complex Allocation
• Bulk Allocation

By allowing traders to enter allocations directly or have them generated automatically through the use of pre-defined parameters, a far higher degree of STP is achievable.

Another issue that has affected STP rates is the lack of standardization of product codes. Exchanges, data vendors, ISVs, regulatory and industry bodies and other third parties all assign their own identification codes to specific futures and options contracts. This means that market participants have to set up ‘trans-codification’ each time they interface two systems.

Code confusion

To do this manually is, as with allocations, ineffective on a cost basis and it also potentially leads to transcription errors. To address the issue, SunGard has introduced GL Instant Map. This combines the SunGard Fame Futures-Contracts Mapping data feed with a software connector for each SunGard system. The data, which consists of global exchanges’ and major third parties’ contract codes, is updated daily.

The two new modules have been designed to deliver efficiencies and synergies to client organizations by automating tasks that can hinder the smooth flow of transactions from the front office through to the middle and back offices. In other words, they can enable brokerage firms to plug two of the most persistent remaining gaps in STP.