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Effective STP

Technological developments over the past decade have enabled companies and banks to create robust IT infrastructures. Many companies have implemented standard enterprise resource planning (ERP) systems and treasury management systems (TMSs), frequently creating financial transaction processing centres, and banks have integrated and centralised their credit management, pricing, trade execution and settlement operations. With the emergence of the Internet and XML, banks and their clients have become able to connect to each other quickly and at relatively low cost. Many banks have recently implemented Internet-enabled transaction tools that allow electronic trading with their clients for a variety of financial instruments, with a prime focus on FX and other financial instruments, such as loans, deposits, repos, and commercial paper.

Corporates and non-bank financial institutions (NBFIs) such as insurance companies and fund managers, use specialised TMSs. These systems provide a broad range of functionality to support treasury operations, including market and position analysis, trade registration, settlement and cash management. Corporates also use ERP systems for a wide range of purposes, including commercial payments and receipts. Where a single system cannot offer all the necessary features, advances in interface technology enable well controlled and low-cost integration of several systems to meet an organisation’s requirements.

Effective STP can be achieved through the standardisation both of the transactional processes between companies & their commercial and bank counter-parties, and of the settlement processes between clients, their settlement banks & clearing institutions. Effective STP requires high quality interfaces between the systems within the commercial organisations, the counter-party banks and the settlement banks.

Commercial Payments and Collections

TWIST believes strongly in the concept of standardisation to achieve effective straight through processing and interoperability. Interoperability means a process design, where multiple players can provide multiple services to their clients, depending on supply and demand for situations concerned.

Clients may need to depend on multiple service providers like banks to fulfil their needs. Clients would like to be able to obtain services from multiple sources if a single service provider fails to deliver.

As a consequence, multiple banks can offer solutions to clients with different scope (each bank offering the services they excel in, with the possibility to incorporate ‘white label’ excellent services from other suppliers as a seamless solution) which requires standards for effective communication, including a payment standard, to allow all service providers to provide the information they can offer and to allow all clients to obtain the information they need.

This does not automatically mean that all service providers should be able to provide all the data concerned. This solely depends on the individual service arrangements between clients and their banks and other service providers. This raises the need for standard messages that can be delivered by multiple providers.

Wholesale Financial Markets

Banks’ internal IT infrastructures and transaction tools, together with corporates’ and NBFIs’ TMSs, provide the opportunity for electronic multi-client, multi-bank markets, with full interoperability between banks’ and their clients’ treasury operations. Most importantly, this framework offers the possibility of straight through processing (STP) of transactions, from deal entry through to netting and settlement.

With effective STP, a corporate or NBFI treasury will need to input a deal only once. The transaction information will then be shared between a TMS and a trading platform, through the whole trade life cycle of initiation, execution, confirmation, netting, settlement and reconciliation. The information can also flow automatically to all relevant risk management and accounting processes.

Effective STP also ensures that high value and urgent wholesale financial market transactions can be processed at minimal operational risk. With electronic trading, effective, system-based controls can be incorporated in the dealing process, validating transactions at the moment of execution instead of when confirmations are matched, or at settlement. Secure communication between clients and banks’ back-offices can enable the netting of positions and settlements. Standard interfaces and communication protocols can also make the connection to payment processes more secure and efficient. Finally, direct links between banks and their clients’ trading and settlement process and reporting systems allow all parties to achieve efficient and effective position monitoring and assessment of operational risks.

TWIST has developed the required interface standards and processes to enable effective STP throughout the process, including for transactions executed on electronic trading platforms. By aligning buy- and sell-side messages and facilitating the integration of systems, the standards enable the single entry of deals, with error-free processing through the lifecycle of trades, thus reducing operational risk. The standards specifically support the validation of transactions at the moment of execution, as well as automated communication of confirmations and the integration of standard settlement instructions & netting in the settlement process. They also facilitate security & audit measures and complete & timely reporting.

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