"STP is Dead, Long Live Automation"

By Bill Gourlay | 21 May 2014

For decades the financial industry has grappled with the concept of STP, or “Straight Through Processing”, but evidence suggests that this has been something of an impossible dream. A little like the Loch Ness Monster, people have very different views around what this looks like, whether it still exists, or whether it was at all possible in the first place, which makes it incredibly difficult for anyone to achieve this particular goal. Given that different firms have different views of what success looks like, and we are talking about operational practices where the exchange of data is between a host of different entities, this all makes for a very complicated and unbalanced scenario.

I was on a panel at an industry conference around seven years ago, when an industry veteran came up to me with the agenda in his hand saying “Crikey, a session on STP, what on earth is that doing there. We’ve been debating that old chestnut for the past 15 years and nothing has ever happened”. Those words have rather stuck with me, as it has become very clear that by creating this all-encompassing utopian dream of total success, we have really set ourselves a target that we were never likely to obtain. Oddly enough, any manager worth their salt knows very well, as reminded by their HR guidelines, that all objectives must be SMART. For those of you fortunate enough not to have received that memo in any part of your career, SMART objectives must be ; Specific, Measurable, Attainable, Realistic and Timely. So, let’s take a moment to conduct an appraisal of the industry’s success in this space.

Specific. Clearly, the first part of any objective must be a clear view on what we are trying to achieve, but on an industry level this is extremely difficult. Straight Through Processing by definition is fairly vague, with no real structure defined around the flows that we are trying to fix, and even to what degree we are trying to enhance these processes. Whilst working at SWIFT I was frequently in discussions with firms around the globe who would say that they have achieved the Holy Grail of STP by creating the autofax, but clearly this only helps at one end of the process and there is still someone at the other end picking the fax up off a machine (if the cleaner didn’t unplug it last night to use the socket for her hoover) to then input it manually into the systems at their end. Where STP means “Straight To Printer” all that does is transfer the risk to a party that you cannot control, and the likelihood is that the manual costs will also find their way back into your relationship at a fully loaded price of around £50 per fax.

Measurable. We all know that measurements can be confusing, and it only takes a quick trip to the changing room of a clothes store to understand that 36 inches can mean one thing to one jeans manufacturer, and a totally different thing to another firm. Commercial considerations point towards this being to make the customer feel great, the boost of a size 10 day over the glum size 12 day perhaps. Evidence suggests that we have let this same “false feel-good” factor slip into our own industry view. Many firms will quote a 90% STP rate, but a little bit of focus on these numbers quickly shows that there are some assumptions or allowances that actually do not quite add up. We know that there are many flows that are conveniently ignored in these statistics, given that they were long ago consigned to the “too hard” bucket.

Attainable. As we have discussed above the lack of clarity around exactly what STP meant has made attaining these goals easy. In organisations where STP meant “Sue, Tony & Peter” who were the guys who collected the faxes from the fax machine, I’m sure they have ticked that particular box, but that isn’t going to have helped in any way when it comes to the reduction of costs, shortening of trade deadlines and the mitigation of risks. Again, the industry created a huge challenge for itself by not actually defining what it was trying to do, by allowing everyone to make up their own minds around what these goals actually were, and then ploughing their own particular furrows with no great reference to each other.

Realistic. A former colleague would refer to “not trying to eat the whole elephant”, which was probably why he lost his job at the zoo! But actually this is a very good way of putting things into perspective. By the very definition of STP, you are requiring success to be a scenario where a message starts its journey in one firm’s systems, then flows through the various systems and technologies of numerous other parties before ending up at its final destination. That is like a non-swimmer saying “I’m going to swim the Channel”, rather than starting off with something a little more realistic like “I’m going to swim a width of the local pool”. Yes, that might be realistic in a very long time, but wouldn’t we be better off to set ourselves some more feasible goals in the short term, rather than risk becoming completely disheartened.

Timely. I only really need to go back to my industry veteran’s comment to answer this one. We are now 22 years on from the period that he initially referred to, and yet for all the numerous initiatives we are still seeing a host of scenarios where STP has not been achieved. One starts to wonder whether we should all start singing along with Andy Williams on “The Impossible Dream”, if we’re going to continue along these lines.

So, having failed our appraisal so badly, what is the answer?

Well, to my mind the answer is very clear. STP has become an albatross on the back of our industry which could, like the Ancient Mariner, just leave us with lots of war stories and lessons for the next generation. There is no definition, no scope, different opinions and very little chance of reaching that summit that we have set our sights on. Given this scenario, and the elapsed time since we started the journey, our industry has become (a little like the employee who was set the non-SMART objective) disheartened and resigned to not meeting the objective, but perhaps scared to admit this to their manager.

The time has come to admit to ourselves that the STP dream, in its original guise, is now dead and that our future target should be automation. Automation represents a far more realistic opportunity for us to achieve our goals in a step-by-step fashion, which will allow firms to travel along a journey where one improvement leads to another. I have often had conversations with industry players who want to use every message, with every counterparty and in every market, before they will even consider moving forwards, but that entirely misses the point of what we are all trying to do. Every single link in the chain that becomes automated will remove the operational risk, high handling costs, and bring improved timeliness to the process. As each additional link is automated, so the benefit increases, as is also the case when another of your counterparts agrees to move from faxes to a more automated solution.

There has been a lot of hard work in our industry over the years, such as the creation of ISO messages in both 15022 and 20022 flavours, the FIX formats, the work done by EMX to create message standards that counterparts would be happy to use. There have been the highly valuable industry groups exercises such as ViaNova for the UK pensions industry, the Findel Group in Luxembourg for cross-border funds, and the various SMPG groups. These initiatives have all created the tools for us to use as we enter a new chapter where we recognise progress and give ourselves a break by allowing each step to be seen as a success, rather than clearing our throats for yet another sing-along with Andy Williams.

So, I put it to you that our industry will progress far more quickly by understanding that we have the tools, the people and the enthusiasm to make a success of automation, but we just need to revisit our overall approach, reconfigure our objectives, and recognise our progress for what it is. STP is dead, long live Automation!


By Bill Gourlay, Chief Executive Officer, Idea Group

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