What is STP?
Straight – Through – Processing is an initiative which enables the entire trade process for financial transactions (e.g. capital markets or other payment transactions) to be conducted electronically without the need for further manual intervention or re-keying in of the same transaction at different other stops stages.
A Straight-Through-Processing (STP) automates the end-to-end processing of transactions on financial instruments. It involves the use of a single system to process or control all elements of the work-flow of the financial transaction, including the front office (trading), middle office (risk management, confirmation &allocations), and the Back office (clearing, payments and reporting). STP is therefore an electronic capturing and processing of transactions in one pass, from the point of first ‘deal’ to the final settlement thus minimizing paper use, manual task and human interventions. Traditionally and prior to the introduction of CSCS in the Nigerian stock market, transaction cycle lasted upwards of six months. However, transaction cycle is now “T+3” i.e transaction day +3 working days. The goal of STP has been to reduce transaction cycle to “T+0” or “T” (i.e. same day settlement). When fully adopted and functioning well, the STP initiative is capable of reducing transaction cycle to instant settlement through simultaneous clearing and settlement of trades. With instant settlement of transactions, the risk of default in trade settlements is minimized if not eliminated completely and cost.
Advantage of STP over Traditional Method
Under traditional method, each and every transaction involves costly multiple data re-entry from paper documents and other sources which are susceptible to errors, discrepancies, delays and possible fraud.
Further, the traditional means and methods of capturing and processing of information such as phone, fax, email etc. requires human intervention which slows the entire cycle, allowing errors and delays settlement.
STP enables orders to be processed, confirmed, cleared and settled in a shorter time period with minimal errors.
STP provides flexible, cost-effective infrastructure, which enables e-business expansion through real-time processing and access to enterprise data.
STP also streamlines back-office activities, leading to fewer failures, lower risks and drastically reducing costs per transaction.
It embraces applications, business processes and standards capable of revolutionizing processing standards within the capital markets industry.
Benefits of STP
STP provides all parties (investors, asset managers, brokers and dealers, custodians, banks and other stakeholders) with much benefits, in terms of shortened processing cycles, reduced settlement risk and lower operating costs as follows:
1. Facilitates shortening of the settlement cycle.
2. Increases transparency.
3. Avoids costly duplication of work and manual interventions.
4. Reduces the risks defaults in settlement and errors.
5. Promotes faster data capturing, processing and report generation.
6. Increases the overall efficiency of the system.
7. Makes the market more cost effective.
8. Allows for better regulation through systematic audit trail.