Straight-through processing: Difference between revisions

Revision as of 07:50, 26 December 2024

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STP was developed for [[equities trading]] in the early 1990s by James Karat in London for automated processing in the equity markets.

The process before STP was very antiquated: sales traders would have to fill in a deal ticket, blue for buy and red for sell. The order was invariably scribbled and mostly unreadable. Upon receiving the order, the trader would often execute an incorrect investment on the market. A runner picking up the ticket to input the order into the system in order to send out a contract note. For example, if the client wished to purchase 100,000 shares, but the trader only executed 10,000, the runner would send out the contract for 1,000. In those days, there was a T+10 [[Settlement (finance)|settlement]] so any errors were "fixable". However, with the new introduction of T+5, the settlement arena changed, and STP was born. To reduce the exposurerisk of risk, failed settlement, there could only be one "golden source" of information and that it was the responsibility of the sales trader to be correct as they had the power to correct any discrepancies with the client directly.

The goal of STP is to reduce the time it takes to process a transaction, in order to increase the likelihood that a contract or an agreement is settled on time. The concept has also been transferred into other sectors including energy (oil, gas) trading and banking, and financial planning.<ref name=Investopedia>{{cite web|url=http://www.investopedia.com/terms/s/straightthroughprocessing.asp|title=Straight Through Processing - STP|publisher=Investopedia|accessdate=16 February 2012}}</ref>