The Canadian Capital Markets Association released the results of an independent study by Cap Gemini Ernst and Young today that estimates the securities industry can save $140 million annually by implementing straight-through processing.

The CCMA commissioned the CGE&Y study to quantify the benefits of STP and T+1 (a one-day settlement cycle) to the Canadian securities industry. Although the focus of both the Canadian and U.S. securities industry efforts switched from T+1 –shortening the settlement cycle from three days following a trade to one day– to STP in July of this year, the CGE&Y study shows that three quarters of the $190 million in annual savings, or $140 million, is directly linked to STP.

Custodians, broker/dealers, investment managers, infrastructure providers (exchanges and depositories), transfer agents and industry associations all participated in the CGE&Y study. With CGE&Y, participants developed a model designed to quantify the benefits of lower transaction costs attributed to STP efficiencies, reduced errors and manual intervention. CGE&Y then extrapolated these and other benefits to estimate savings for the overall industry.

A key finding from the study is that participants expect the percentage of transactions requiring manual intervention to drop by approximately 80%. Additional benefits are expected in a number of other areas:

> Transaction correction cost reductions – $35.0 million
> Operational efficiency gains – $42.3 million
> Operational risks and financing cost savings – $45.0 million
> Infrastructure savings and opportunities – $5.0 million
> New revenue sources – $10.0 million.

Annual benefits from STP are estimated at $137.3 million. Add in the reduction in default risk from moving to T+1 of $53.0 million, and the total benefits from STP and T+1 come to $190.3 million.

Survey participants believe that the study’s conclusions are conservative as it excluded benefits that are known to exist but cannot easily be quantified. For example, savings on cross-border and retail trades as well as direct savings for institutional and retail clients, issuers, the retail broker front-office and financial planners could add to the estimate. Another consideration is that the study is based on current annual trade volumes, which may increase in future years.

“The reduction in cost and risk associated with implementing STP in the securities industry will result in better service, better prices and increased competitiveness of Canada¹s capital markets,” said Thomas MacMillan, chair of the CCMA in a news release. “Using the study¹s methodology, each company should be able to estimate its own benefits from implementing STP.”

“This study now quantifies the benefits we have been talking about conceptually. It provides a template for companies to build on when assessing the benefits of STP for their organization and STP business case,” said MacMillan. “Equally important, it provides a point of departure for further discussions of the benefits and costs of STP initiatives.”