With T+1 off the table for now, the SIA plans to issue new STP goals, along with target dates, in October.
The Securities Industry Association, which recently announced that it was shelving the T+1 debate until 2004, plans to provide the financial-services industry with interim straight-through-processing milestones to be reached over the next two years.
The SIA says it will announce those plans at its Oct. 2 conference, where some of the ongoing STP initiatives will include: improved processing of institutional trades; electronic book entry to replace physical securities and payments, and automation projects around corporate actions (such as recapitalizations and dividends), stock lending and syndicate underwriting.
Syndicate processing is one of the issues that made going forward with a T+1 conversion impractical, says John Panchery, vice president and managing director of systems and technology for the SIA. That's because problems around the floating of new issues in a one-day-settlement environment have still never been sufficiently addressed, he says.
Other T+1 issues which remain unsolved are cross-border foreign-exchange transactions where time-zone differences make even defining "next-day" a challenge. "There is no magic bullet in fighting different time zones when you are dealing with (counter parties) about 10 hours ahead of us in Asia," says Panchery. "We're not saying that (resolving these issues) is impossible but it is going to require a lot of concentrated effort."
Another area the SIA says the industry should focus in the next few years is the elimination of physical certificates which can be lost or stolen and generally cost the industry millions each year in reduced efficiency and wasted time. According to Panchery, one way to reduce paper would be to phase out physicals once they come back into the financial system by no longer reissuing new ones.
There are, he says, alternatives to holding physical certificates which should satisfy almost anyone's needs. One option would be for investors to keep a record of their holdings at their broker/dealer, which could transfer that record to another broker/dealer if the client ever chooses to switch firms. Second, investors can take part in what is called "direct registration" with the company that issued the certificate. "That means you don't have the physicals but they are registered with the issuing company," says Panchery.
The SIA still expects the Securities and Exchange Commission to make good on its promise to float a T+1 rule-change proposal despite the SIA's recommendation that the issue not be seriously considered till 2004. Robert Colby, deputy director, division of market regulation, SEC, says, in addition to SIA recommendations, the commission still has an obligation to hear directly from all the industry's segments on an issue that would seriously impact the way firms do business.
In fact, T+1 could still become a reality even if the SEC backs off its pro-T+1 stance. Other industry bodies, such as self-regulatory organizations (SROs) and industry heavyweights, such as Omgeo, could make decisions which definitively affect the way trades are processed.
"We are not a regulator," says Panchery of the SIA. "When it gets closer to eliminating systems that are in production today the SROs will start looking at that when they do their audits. We're also getting close to eliminating the ID system (for affirming institutional trades) which should take place two or three years from now. These things will be done by the SROs or the actual provider of that service."
Though the SIA is not going to produce a totally new T+1 business case to replace the existing one formed at the height of the Internet-bubble economy, Panchery says the SIA "(has) decided to re-look at the numbers from the buy-side portion and (is) updating those," in light of the current economic conditions.
Despite its decision to postpone the T+1 debate in favor of more attainable STP goals, Panchery says the SIA is still a T+1 proponent. "My personal goal is that we would be able to do today's work today and tomorrow's work tomorrow. We are past the point where we should be working on today's work for three days."