Aust financial sector sets pace, sometimes

Australia's financial services organisations boast straight-through-processing (STP) rates that are among the best in the world but in other areas of trading they are way off the pace.

For example, Australia's rate of same day affirmation (SDA) of trades is among the lowest in the world and this is despite a 20 per cent improvement since 2001, according to research commissioned by trade management services provider Omgeo.

When it comes to automation and efficiency Australia rates well, particularly on a regional comparison.

The survey covered 15 financial organisations in Australia and more than 60 throughout Asia.

Omgeo Asia's managing director, James Drumm, said SDA rates are a barometer of operational efficiency and that achieving same day affirmation reduces counterparty risk (the risk that the other party to an agreement will default) and the risk of settlement failure.

"Reaching the industry SDA target rate of 95 per cent will lead to improved customer services and reduced costs," Drumm said. In order to improve SDA rates, Drumm said Australian fund managers need to turn automation around more quickly.

"There has to be a mindset change, and they have to think, 'let's get these trades affirmed immediately, so we can concentrate on other areas of the back office'. But some are in the frame of mind of thinking 'why stay back to 6pm when we can get this done at 10am the next day'. We are saying, get it done immediately so money is not tied up in trades," Drumm said.

Meta Group vice president of research and technology services John Brand attributes lower SDA rates to a conservative and risk-averse climate in Australia compared to other global markets.

"A bad trade is still a bad trade regardless of how quickly it is performed," Brand said.

He said it is not up to the IT department to prove the value of STP systems "as it's a 100 per cent business issue", but admits IT departments fail to effectively articulate to the business the value that STP could provide.

The research found organisations are increasingly outsourcing the responsibility for managing complex STPs in a bid to uncover competitive advantages.

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