The oft referred to "plumbing" - the behind-the-scenes systems infrastructure necessary for processing a trade - continues to draw sizable investment by the global custodian community. To gain a better perspective of the critical issues facing the industry, the world's leading global custodians were queried about latest system development efforts. The survey identified a number of new initiatives, but, clearly one area is receiving far greater attention than the rest, namely Straight-through-Processing (STP). This article addresses STP and other current system development efforts.

"Those wishing to remain in the custody business need to increase investment in technology to create efficiencies," says one major custodian. Most custodians agree, as the path to greater processing efficiencies is gravitating toward an industry mantra of STP. STP is the seamless integration of the investor's trade confirmation in any global market through the clearance and settlement process.

A U.K. custodian's view captures the essence of the latest technology juggernaut, "An improvement in operational efficiency combined with a reduction in costs will be the driving force over the next few years throughout the custody industry. This is mainly achievable utilizing STP, allowing for seamless transaction processing in all operational areas." This custodian is working to upgrade STP capabilities, a common objective being pursued by all custodians.

Another advantage is the reduction of risk. "STP allows the industry to better adapt to compressed settlement periods, while minimizing settlement risks, eliminating the need for fax, telex and paper confirmations, reducing costs and providing a full audit trail from input to confirmation," adds another custodian.

"We are firmly committed to further enhancing our service in addition to increasing the level of automation in the UK market where traditionally, work flows have required higher levels of manual effort. Connectivity with client's back offices remains a high priority. By building automated interfaces clients and custodian can achieve efficiencies from the speed of two-way information flow."

In pursuing the STP concept, global custodians and others are converging on a common network solution, namely S.W.I.F.T. "The decision [was made] that the S.W.I.F.T. route would be a standardized mechanism for dealing with not only overseas clients, but larger UK corporates over time," says one custodian. This custodian is currently undertaking "...a major re-evaluation of present S.W.I.F.T. capabilities, ranging from automation and interfaces, to the messages used in our daily operations."

S.W.I.F.T. is the dominant method of communication with global custodians and their agent bank networks. With an ever-expanding list of eligible participants, system usage and message volumes are on the rise. S.W.I.F.T. offers security, standardization, authentication, instant acknowledgment and network protection within a single medium. All global custodians are developing worldwide system solutions based on a S.W.I.F.T. network, presently expanding usage to investment managers. The industry is committed to S.W.I.F.T. and I.S.I.T.C. message formats as a standard method of communication between clients, investment managers, subcustodians and member banks. [More about I.S.I.T.C. later in this article.]

In November 1995, I.S.I.T.C. and S.W.I.F.T. announced a new working relationship to address an industry need - a standard communication between fund managers and custodians. I.S.I.T.C. messages structures and future business requirements were adopted to S.W.I.F.T. standards, both existing and planned.

Recent initiatives by S.W.I.F.T. paved the way for greater acceptance by the securities industry.

The complete article on Straight-Through-Processing, including S.W.I.F.T, I.S.I.T.C., DTC and other systems developments are available to Yearbook subscribers at STP..