Creating a real-time STP environment for eFX
Yaacov HeidingsfeldCOO, PFS TraderTools LLC
By utilising existing technology and standard published APIs,
institutions can create a truly electronic Straight-Through-Process
for their long term eFX strategy maintains Yaacov Heidingsfeld.
If you are anything like me, you receive e-mails, read articles and
attend project meetings that refer to STP (Straight Through
Processing) as the Utopia of workflow solutions. These e-mails and
articles seem to suggest that STP is the only thing keeping your
organization from being the picture of efficiency. At the project
meetings you attend the main topic is why haven't you completed
that STP project for your financial institution? The obvious
question, if STP is so great, why after all this time is (almost)
everyone still talking about it, with few if any having implemented
The answer may lay in a book by Carlota Perez, a researcher at
Britain's University of Sussex, called Technological Revolutions
and Financial Capital: The Dynamics of Bubbles and Golden Ages
published late last year. (Edward Elgar, 2002). The author suggests
that technological revolutions have two consecutive lives. The
first, which she calls the installation period, is characterized by
difficult adaptation. It is typically led by what Perez calls
financial capital, and features adaptation resistance from
established firms and institutions.
The second period, Perez calls the deployment period. This period
is characterized by hyper-adaptation, is led by production capital,
and focuses on how this new technology can be effectively
implemented in a mature industry to make things more efficient and
therefore profitable. Based on our many meetings with financial
institutions, I believe we are arriving at this second, critical
A dictionary might define STP as the ability to electronically
create a trade, and keep it electronic through the processes of
execution, confirmation and settlement with no manual intervention.
As profits from trading become more and more difficult to
accomplish, many financial firms are looking for electronic STP, as
a means to increase these margins. This can be achieved by
increasing the number of executions a desk or firm can handle,
while lowering the cost per execution. Reduction of errors is also
a major factor.
During the last technology boom, many companies were born, offering
advanced innovations in e-trading. The approach many took was to
try and sell their entire system or solution as a replacement for
whatever systems or processes were currently in production.
Adopting this strategy required an institution to make a
significant investment in hardware and software, as well as to
change the entire work process. This generally included replacing
efficient production technology, because it was legacy and couldn't
be integrated with the newer e-enabled applications. For many STP
adaptors this process proved to be too costly and time consuming to
undertake. An alternate strategy had to be created to solve the
problems of integration while remaining cost effective.
To see how a major financial institution with trading desks in
multiple geographical centers solved this problem, we will first
describe their existing, highly manual, processes and then outline
their solution for creating a true STP environment without removing
their efficient legacy back office platform. EBS and Reuters
Dealing 3000 trades are manually ticketed and key punched into the
back office system. Pricing for branch office executions manually
entered twice a day by dealing desk. All transactions less than
$75,000 USD executed at branch level, key punched into branch
system, sent to dealing desk, key punched into risk system to
generate ticket then key punched into back office for processing.
Deals in excess of USD $75,000 executed via phone with dealing
desk, tickets written, deals key punched into risk system then back
office system. Manually end of day reconciliation of all trades.
When an analysis was performed on the processing of a foreign
exchange transaction this institution discovered their cost
averaged nearly $85 dollars per execution. Without the economic
ability to replace their legacy back office system this institution
determined that they must do something creative to lower their
processing expense while creating the basis for an e-forex system.
What approach did this institution take that allow it to create an
ROI, enter the e-Forex marketplace, and reduce the cost per
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