SIA hopes to keep momentum going for Wall Street STP

In the first meeting since changing the securities industry's focus in July from next-day settlement of trades to rolling out straight-through processing (STP) technology and rules, Wall Street executives yesterday told member firms that spending on technology to improve efficiency is needed now more than ever.

At its Fall STP conference here, the Securities Industry Association said it is betting on three forces to drive the industry toward the goal of achieving STP over the next several years: cost savings through electronic efficiencies; industry leadership; and regulatory pressure from the U.S. Securities and Exchange Commission (SEC). STP is the electronic movement of trade information from the broker to the bank and to the clearinghouse.

With a bear economy, the efficiencies of STP are needed now more than ever, said Jeffrey Bernstein, a senior corporate director at Bear, Stearns and Co. in New York and chairman of the SIA's STP Steering Committee.

Executives said one thorn in ongoing efforts to achieve STP is paper stock certificates and checks. While they represent a small portion of securities transactions, paper certificates slow progress toward a complete electronic environment.

"We still anticipate the regulators will help us eliminate the certificates," Bernstein said.

Bernstein, who said most of the SIA's goals "are the same as they were two years ago," said possible rules proposals expected from the SEC by year's end will focus on eliminating paper certificates and mandating that firms join virtual matching utilities (VMU). VMUs use mainframe computers as central hubs to perform "electronic handshakes" between broker-dealers, buyers, banks and clearinghouses. Currently, there are two VMUs: the Global Straight-Through Processing Association and Omgeo Corp.

Larry Bergmann, senior associate director in the SEC's division of market regulation, said he expects that his agency will publish a concept rules proposal for comment by the end of this year. He said the rules proposal will likely focus on electronic trade confirmation systems, shortening settlement cycles from three days to one and eliminating physical certificates.

Bergmann also said the government still believes STP is necessary to protect investors.

"The higher objective in this mandate is investor confidence" and to promote the "prompt and accurate settlement of trades," he said. "The question still remains whether [joining a VMU] should be mandated."

In July, the SIA dropped a proposed deadline for achieving the settlement of trades by the next day and instead decided it would focus on promoting STP.

But it may be difficult to convince 6,000 small firms, as well as institutional investment managers and advisers who perform only two or three big volume block trades a week, that VMUs and other investments on the high-tech highway are the key to cost savings and efficiency.

"I think people need to invent a smarter mousetrap that the buy-side can adopt [for STP], like an industry Web site a small investment firm can go to and click to confirm trades without worrying about the details," said John Davidson, managing director and global co-head of institutional sales and trading infrastructure at Morgan Stanley.

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