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STP will only happen if it has a regulatory mandate

I didn’t mean to make this a series of articles, but
it has become one.

After discussing TQM and BPR, then getting into STP, today it is the turn of ISO.

It’s not actually me having a pop at ISO, but the fact that discussions
have been on-going about STP for so long, and now I know why it’s not in place.


That’s the Ignore Standardising Operations group, not the
International Organisation for Standardisation, although they are related.

The Ignore Standardising Operations group have been around
since time immemorial and, in capital markets, are clearly responsible for
separating buy and sell side, front and back office, broker from clearer and

It is this market that illustrates the issue well, as it’s
the market that created the term STP, and it is this market that I spent some
time with this week at the Tradetech Post Trade Conference.

This conference aligns closely with the CAS-WG that we launched
earlier this year, and I finally crystallised in my own mind what the problem

It’s pre and post trade.

It’s buyer versus seller.

It’s proprietary versus open.

It’s trust.

I can illustrate this point well in that I faintly
remembered a very old initiative yesterday called PORT.

From a report I wrote on fund management for the Financial Times way back in 1997:

PORT is ‘An industry
led formal entity with dedicated resources to drive the best solution for the
future infrastructure of Global financial markets.’  There are two components to this.  One is the formal entity to facilitate
interoperability and regulation of standards that is industry owned and
run.  The second is facilitating the
creation of a logical network with a guaranteed level of security and service,
performance and reliability, and that conforms to industry standards. 

The report discussed PORT as a potential solution to bring
together the new pre-trade standard, FIX, and the existing post-trade messaging
standards of SWIFT through an intranet-based solution.

It died a rapid death as no-one wanted to bring pre- and
post- trade together, and it didn’t have a strong business driver.

After all, the players in the pre-trade front office world
are very different to those in the post-trade back office environs.

The front office is full of bulge bracket brokers, high
frequency traders and algorithmic dealers, careful and considered fund managers
and pension funds, and treasurers trying to get the most out of their working
capital.  The back office is the slower
world of clearing and settlement, custodians and processors, collateral
management and network management.

These are very different worlds and the two have remained
determined to stay apart, which is why we don’t have STP in the capital

FIX only worked, for example, because the largest fund
manager, Fidelity, told all their brokers that they wouldn’t trade with them if
they didn’t use it.

SWIFT only worked because interbank processing was insecure
using telex and a new secure messaging system was needed.

Ever since then, there has been no burning need to bring the
two together and this is why interoperability and integration has not happened.

Think about it.

After PORT, there was the Global Straight Through Processing
Alliance (GSTPA).


Then there was the unificaiton standard, ISO 15022.


There was the Linkup Alliance and Code of Conduct in
Clearing and Settlement.


Now there’s, the new UNIFI standard ISO 20022 along with
Legal Entity Identifiers for all derivatives instruments using ISO 17442.

All of this is encapsulated in the investment roadmap (download) and more.

All of these efforts are meant to harmonise, standardise and
integrate the markets so that they can work together in a seamless,
interoperable way … but I suspect no-one wants it that way.

A little like Esperanto as a European language, you only see
an agreement of standardisation occur if market forces demand it.

That is why the global language became English, the standard
operating systems were IBM and Microsoft, the standard for consumer
technologies is Apple, and the standard for payments messages is SWIFT.

It is why the only way to break this cycle and bring harmonised
standards together for Straight Through Processing, is for the regulator to
make it so.

This is certainly the case with clearing and settlement,
where the self-regulating and self-managing approach to harmonisation failed.

It will also be the case with integrating the pre-and post-
trade worlds, the front and back office worlds and the global and regional
worlds of capital markets.

And perhaps, just perhaps, once it’s all done and dusted, we
will achieve Straight Through Processing.



About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  1. “That is why the global language became English”. Sorry, it isn’t. English is fairly widespread, but it is far from universal.

  2. @Tom
    Mandarin Chinese is the most spoken language, but English is far more global. It is the official language in 83 countries, and spoken in 105 others.

  3. live in London and if anyone says to me “everyone speaks English” my answer is “Listen and look around you”. If people in London do not speak English then the whole question of a global language is completely open.
    The promulgation of English as the world’s “lingua franca” is impractical and linguistically undemocratic. I say this as a native English speaker!
    Impractical because communication should be for all and not only for an educational or political elite. That is how English is used internationally at the moment.
    Undemocratic because minority languages are under attack worldwide due to the encroachment of majority ethnic languages. Even Mandarin Chinese is attempting to dominate as well. The long-term solution must be found and a non-national language, which places all ethnic languages on an equal footing is essential.
    As a native English speaker, my vote is for Esperanto 🙂
    Your readers may be interested in seeing http://uk.youtube.com/watch?v=_YHALnLV9XU Professor Piron was a former translator with the United Nations
    The Esperanto online course http://www.lernu.net has 125 000 hits per day and Esperanto Wikipedia enjoys 400 000 hits per day. That can’t be bad 🙂

  4. Brian
    I don’t mean speaking English as a first language, but English became a de facto global standard for language thanks to the internet. It may change in the future, but that’s the truth today.

  5. If the only solution is regulator imposed, it seems unlikely to happen and even less likely to be successful. Are regulators (and government) competent to address this – and should it be their role? And regulation is fast becoming the next ‘financial bubble’. ‘A recent study by McKinsey estimates the compliance costs of Basel III….translates into over 70,000 new full time jobs…..in the US is similar…..the compliance costs of Dodd-Frank will run to tens of thousands of full-time positions.’ – the Dog and the Frisbee, Andy Haldane. The far more likely resolution is greater efficiency will come from a country, a continent, an industry that is not beset with legacy process, organisation structure and behaviour. PORT was the right idea, just well before its time (there are other examples, such as Tim Jones’ Purseus.)

  6. Hi,
    Can only agree but will it ever happen… In a past blog (https://www.swiftcommunity.net/communities/49/blogdetail/20931) I was advocating that standardisation (naturally leading to STP and transparency) was a if not the critical component to ensure efficient regulation as well as a sustainable recovery of the financial industry. Exagerated, some people told me. Well, still strongly believe it. We might get there for the first time with the LEI.
    After that, everything is possible 🙂

  7. What is the regulator’s track record in imposing unpopular changes over the regulated?
    With a nod to neil’s regulatory bubble, these are perfect examples of the regulated getting their cake and eating it too: as the solution is imposed on everyone, every player grows by leaps and bounds, costs rise, and fees therefore rise. What’s not to like?
    Mandate STP is to mandate lower costs and lower fees – how is the regulator going to achieve that?

  8. Strongly-agree with Alex. I’ve heard similar sentiments from many in the industry i.e. it’s a pipe-dream & will never happen. I’ve seen on many, many occasions the real-world impact to BAU where the lack of global standards seriously impact operational-efficiencies & instead, increase operational-risk. Collaborative work as well as regulations seem to be the only methods of imposing standards on all industry-players in-order to realize this & standardize so all can reap the benefits but I for one am not holding my breath.

  9. http://www.derivsource.com/articles/reducing-counterparty-risk-increasing-transparency-through-electronic-messaging-margin-call
    This conf-call is a prime example of how industry-standards now need to be in-place more than ever across the industry. All the areas discussed in this call are highly-relevant per the refocusing by all players on the optimum use of collateral pledged & moved etc. If the industry is serious then real-time asset-valuation (subjective for OTC’s)vs. market-movements & the consequence exchange of collateral may then one day become a reality, we’ll see but the industry needs to work much collaboratively to achieve this.

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