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09:44 PM
Larry Tabb, Special Contributing Editor
Larry Tabb, Special Contributing Editor

STP - Stick a Fork in it, We're Done!

I first heard of STP in 1996 when an old friend at Morgan Stanley called and asked about this thing called straight-through processing.

I first heard of STP in 1996 when an old friend at Morgan Stanley called and asked about this thing called straight-through processing. After explaining it, I queried, "Wasn't that what we had been doing - developing technology to automate operations and connect disparate systems?" He said, "Yes it was, but there was a lot more." My curiosity took over and I wrote my first research on STP. Little did I know when my friend said that there was a lot more, how much of that more there really was. STP has become a mantra and a rallying cry for our industry through GSTPA, T+1, the Internet boom, the economic downturn, and now through the rationalization age.

It was a good ride while it lasted, but I believe the ride is coming to an end. We have electronic markets. We have seamless front-to-back connectivity for many products. We have investors trading thousands of trades per day. Do we need more?

While I am talking about an end to STP, I am not saying that we are going to stop thinking about efficiency or stop integrating or cleaning data, or automating the electronic relationships between internal and external people. I just believe that the acronym straight-through processing is tired, and what more is there to say? We all know what we need to do, what we need to connect, and how we need to connect it.

So it's time to say good-bye to STP, you've done me proud. Sayonara, adios and au revoir. But what is next?

After the foundation comes the building

We have spent years automating, connecting and harmonizing. We have protocols that enable disparate system to communicate. We have standards to help level the playing field. We have technologies that process millions of transactions a day. However, we, for the most part, still do things the same old way we did them 20 years ago, just faster and more efficiently.

Now that we are moving out of the down cycle, the next challenge is to leverage this connected infrastructure. This is not the idea of linking together another front-office system to another back-office system or connecting one customer to another custodian. This is the idea of developing methods to truly revolutionize the way that the industry works, leveraging our connected ecosystem at a cost structure that is radically different.

There are already demonstrations of firms that are making this transition. For example, on the trading side, CS First Boston is leveraging its execution infrastructure, FIX connectivity, proprietary modeling and execution engines to deliver Advanced Execution Services (AES), providing a FIX-enabled zero-footprint algorithmic-trading environment delivered directly to clients' order-management systems.

Or Lime Brokerage, a small New York-based automated-execution firm leveraging its high-speed direct-access execution network, black-box interface and back-end clearing and settlement relationship with Penson Financial to offer sub-penny pricing on automated executions. This is vaulting their trading volume from zero to one of Nasdaq's top 40 dealers in less than four months.

In each of these examples, firms are leveraging the connective network infrastructure to extend, transcend and provide better, faster and less expensive services enabling a whole class of products and services that did not exist even a year ago.

So while we still need to push forward our connective infrastructure, expand connectivity, develop and evangelize standards and continue to integrate front to back and customer to custodian, I believe that we need to increase the intensity of debate from how do we connect, to how do we change our business once we are connected.

After all, endless infrastructure discussions only excite engineers and contractors. We need to raise the level of excitement to not only arouse our industry but a world of global investors.

Larry Tabb is founder and CEO of Westborough, Mass.-based The Tabb Group, a financial-markets strategic-advisory firm.

[email protected]

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