By Gavin Adamson
London, U.K.

(March 21 – 09:35 ET) – Shorter trade times are coming, says the Executive Director of the Global Straight Through Processing Association, Dr. Anthony Kirby. He made the prediction at the 3rd annual Buy Side/ Sell Side Technology Conference being held this week in London.

He says the securities industry is set to move to “straight through processing.” STP involves transforming every element of trading into an electronic process — from the intention to buy and sell, all the way to clearing the trade. It’s often associated with the move to a shorter settlement cycle. Trades take three days to settle today (t+3), and within a few years, the GSTPA expects to collapse the cycle down to t+1, and eventually to t+0, much like people might by any commodity.

“If I went outside to Kensington High Street and bought a piece of furniture, and the vendor told me it would cost 85£ to make the transaction, and that I had to come back in three days to pick the piece up, that just wouldn’t do,” said Kirby, who is the GSTPA representative for the t+1 committee in the U.S.

The GSTPA is a broad industry group, with representatives from brokers, dealers, mutual fund companies, pension funds, and other elements of the investment industry. It’s executive committee includes AMN AMRO Bank, Deutsche Bank, CitiGroup, Goldman Sachs, Merrill Lynch and others..

When an executive member from a Turkish brokerage asked how important GSTPA should be to regional dealers, Kirby was clear. Even if a broker does 90% of its business in a domestic market, the entire industry expect to convert to t+1 within the next two years, he said.

A shorter settlement cycle would certainly be more customer friendly — trades would be cleared by the end of the day — but electronic filing would also reduce the cost of global investing, and decrease risk in the markets.

According to data by SWIFT, an securities industry research group, more than 20% of all cross-border equity trades fail. Sometimes the failures are simply a result of a typing error by a human somewhere along the line, sometimes it’s because of poor trading instructions, but the errors results in 41% of the total costs of trading when they’re
tallied up.

Three-day settlement is also risky because during a volatile market, if one of the two sides of a big deal goes insolvent, it would potentially affect a whole range of trades made in the two following days, sending the markets tumbling even more. A shorter cycle means less risk. All sorts of financial services technology companies are champing at the bit to become part of the GSTPA model, an operational challenge to say the least. Many questions were asked at the conference, and many were left with no conclusive answers. “But all brokerages should see this as a major strategic opportunity,” said Kirby.