The Cutter Edge Issue Six

The Buzz on STP: Best Practices and Codes of Practice

The development of Best Practices and Codes of Practice for STP is fast becoming a priority in North American markets. In the U.S., the SIA has established Codes of Practice Committees. In Canada, the CCMA has formed a Standards & Best Practices Working Group. When completed, these guidelines will focus on the quality of critical data elements and the timeliness of data required supporting STP in their marketplaces. In Europe there is less focus on best practices and more on ISO 15022 adoption/adherence, especially through SMPG (Securities Market Practices Group).

Best Practices: A Definition
While the industry is still in the early days of scoping this initiative, Best Practices will likely encompass approaches, strategies and activities that promote effective trading in an STP environment. Also anticipated are terms such as codes of conduct, business/market practices, standards, guidelines and conformance.

Why Are Guidelines Gaining Momentum? When the SIA postponed the mandated deadlines for T+1, it removed the pressure of industry-mandated completion dates for the many firms that had project plans aimed at STP and T+1 migration. Industry-driven Best Practices will assist firms in validating their approach to STP and help them prioritize tasks at suitable intervals both internally and amongst industry participants.

How Will Best Practices and Codes of Practice Evolve?
While industry benchmarks for migrating to STP are still in their infancy, initiatives will likely focus on:

External STP amongst industry participants in capital markets
Communication standards and trade data message elements
Recommended response times for trade message flow components

What is NOT in Scope for These Codes of ConductPractice?
Numerous elements will not be addressed upfront and should be of particular concern to asset managers including:

Best Practices for internal STP and connectivity
Guidelines for pre-execution trade elements
Recommendations about technology and industry connectivity

Where Do These Industry Initiatives Stand?
All indications are that North America will lead the establishment of STP best practices. The SIA has formed Codes of Practices Committees, but the mission statements have yet to be finalized. The CCMA has also formed a Standards & Best Practices Working Group and is defining Best Practices for the industry in Canada.

The situation in Europe is complex: public agencies such as the EU Commission, the Giovannini Group and Lamfalussy's Committee of Wise Men have similar themes: the vast fragmentation of the cross-border market in Europe leave many to think real STP is not feasible until clearing and settlement issues are more unified. The big obstacles to this are regional taxation, governance and politics. The primary focus has instead been on ISO15022 adoption through the SMPG.

What is the Bottom Line for Asset Managers?
Asset managers should monitor updates on industry efforts for these guidelines for the markets in which they execute trades. While the focus of the guidelines will be dealing with external STP, asset managers are reminded that industry guidelines do not alleviate requirements for internal STP Best Practices and the systems and operational changes that must be implemented in order to attain internal STP.

April
The Technology Alliance!"
Boston
Topics:
Data Warehousing
Risk Management
The Technology Council!"
New York and London
Update on Data Warehousing

June
The Technology Council !"
New York and London
Topics:

Market Data
Security Master/Reference Data Systems
The Technology Forum!"
London
Charter Meeting

September
The Technology Rountable !"
New York
Benchmarking Effectiveness Survey Pilot
October
IT Budget Survey Report

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