What is Straight Through Processing?

by Investing School on March 25, 2011

The term “Straight Through Processing” (STP) refers to a process designed to allow the complete processing of capital markets and payment transactions to be managed electronically. This means that there is no need for information to be re-keyed, re-entered, or otherwise interfered with, assuming there are no legal and other regulatory concerns. The concept of “straight through processing” has also been adopted by various other market sectors, such as energy, financial institutions, and investment planning.

In the most common market situation, following a trade from its initiation to actual completion can take a number of days because of the many manual processes involved. The completion of equities transactions in this manner is known as “T+3 Processing,” because it generally is accepted that three business days will be required for settlement.

STP is widely viewed as an opportunity to ensure settlement within the same day, or potentially even within a few minutes or seconds. In order to accomplish this, however, a number of market elements will need to institute increased levels of STP. Although STP would be nothing more than a particularly efficient use of computer technologies for transaction processing, there are a number of moving parts involved, and therein lies the challenge of making its speedy potential a reality.

Some experts believe that a comprehensive and thorough STP is not achievable because firms themselves are less likely to see the benefit in achieving these goals. Others believe that STP may yet be accomplished through increasing business process interoperability within the markets.

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