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providing as much forewarning as possible of
potential bottlenecks. “Another way we have been
addressing these choke points in the STP model is by
using standard protocols, such as FIX and FpML, as
much as possible, both in the interaction with third
parties and trading locations and within the
application, to process the flow of transactions.”
Gosling says that the endgame is to be able to process
increased volumes with no increase in processing cost,
or in an ideal world, to reduce these costs. Therefore the
focus is on removing cost from the lifecycle of over the
counter instruments and typically a lot of the cost still
resides in the middle and back office. “Firms are looking
to cope with known growth, and the scalability to cope
with unpredicted future growth, and equate that back
to cost per trade calculations so there is a clear case to
management for return on investment,” he says.
Improvements to STP
Paul Hodgson, product manager, Front Arena SunGard,
says that big improvements have been made in the use
of the single confirmation of trades between customer
and bank for the more vanilla derivatives enabling
traders to negotiate more exotic trades individually.
However, he adds, the most significant improvements in
relation to STP efficiency has been in the front-end
systems, as these ensure consistency of data from the
point of negation by getting data entry from the
customer/counterparty. Hodgson says this is the single
most effective tool in the reduction of 'fails' and the
improvement in STP rates.
“Many technological advances have helped here.
However they have not completely alleviated the
situation, there are still many components of the pricing
process which involve data that is protected or restricted
in its distribution to the broader market. Particularly in
relation to OTC derivatives where the more complex
models may need data derived from very sophisticated
analyses in what many consider proprietary systems that
are their ‘market edge’,” he says.
Hodgson believes that ‘choke-points' will always exist
in any trading environment but as long as the number
of variables used in the trade increase gradually, and
systems provide an STP framework whilst also allowing
new instruments to be rapidly exposed to the end
investor, it will ease the processes from its initiation.
However, he says that as increased volumes drive
down spreads, and make it more viable for more
dynamic hedging of derivative trades for traders and
62 | january 2010 e-FOREX
Paul Hodgson
“The pressure to reduce costs is only sustainable if
organisations can rely on processing solutions that deliver in
a consistent and scalable way implementing STP and
exception-based processing concepts.”
investors alike, the systems supporting the activity
have to improve STP to reduce the cost per ticket to
ensure that increased overall transaction fees do not
consume savings in the market spreads.
Processing solutions
Hodgson says: “The pressure to reduce costs is only
sustainable if organisations can rely on processing
solutions that deliver in a consistent and scalable way
implementing STP and exception-based processing
concepts.”
Paul Moffat, operations product manager, Front Arena
SunGard adds that the key to this is to ensure that the
modelling of vanilla, and new, more structured products,
follows a paradigm that allows for powerful extensibility,
without ‘breaking’ existing processes or products.
He says: “In the processing area, technology is key to
ensuring that the complex models mentioned above
can be ‘broken down’ into their processing components
– settlement, confirmation, and accounting – for both
the original transaction, and the ongoing lifecycle
events that will occur. Systems that deliver processes
that can handle these events in a generic way will
deliver significant cost savings and risk reductions.”