Straight-through processing (STP) automates the processing of transactions for financial instruments from beginning to end. It is intended to streamline back office activities, leading to fewer failures, lower risk and lower per transaction costs.
In STP, information that has been electronically entered is transferred from one party to another in the settlement process without re-entering the same information manually. The financial industry reduced its trading cycle from T+5 (settlement five business days after the actual trade took place) to T+3, but has felt the need to speed the process further by attempting to achieve STP. It is striving for at least same-day settlement, and ideally minutes or even seconds.
Trade processing has historically been an inefficient process that involved manual inputting and re-keying of data as it passed from one proprietary trading system to another. STP attempts to integrate front-end, middle, and back-end applications and connect the various participants electronically in order to reduce inefficiencies.
But that may be changing. The Securities Industry Association (SIA) recently predicted that its constituents would spend a further $8 billion next year on STP inititatives, almost all of it on internal systems. In the managed funds sector, investors are driving the push for greater STP implementation by demanding more transparency on investment activities and costs in the volatile markets following the credit crisis.