Mr Thomas Kloet, SGX Chief Executive Officer, said "STP will reduce the operating and business costs, lower the settlement risk and provide more timely risk management information for participants in the Singapore securities market."
The Central Depository (CDP) already has STP for investors with direct accounts. Today, when such an investor executes a trade, the trade details are captured electronically and the relevant contract notes are generated. On due date, the securities are debited from the seller's securities account, and credited to the buyer's securities account. Besides payment, no other action is required from either the investor or the broking firm to settle that trade. STP will achieve similar efficiency for institutional trades by automating all the processes from trade to post-trade and settlement, with minimal manual intervention.
Currently, the matching of settlement details for institutional trades is a manual process. When trades are executed, brokers and custodian banks compare settlement details via telephone and faxes prior to inputting the instructions into the CDP system. STP will eliminate this process with the use of a Central Pre-Matching utility (CPM) and a Participant Access Module (PAM). The CPM will electronically match settlement instructions prior to settlement while the PAM will allow market participants to communicate with other participants via the CPM, irrespective of the communications system the other party is using. All participants will need to interface with the CPM via a PAM which communicates between their back offices and the CPM. With this, participants need not have numerous bi-lateral links.
Benefits of the Central Pre-Matching utility (CPM)
The CPM utility will help Singapore achieve two very important goals. First, at the domestic level, it will bring about end-to-end Straight-Through-Processing for local market participants. This will reduce manual intervention and late instructions, mitigate risk of input errors, increase processing capacity, and ultimately lower cost. The global benefit is the ability of the CPM to act as a communication hub for trade settlement between local and overseas participants.
The CPM will comply with international initiatives of a similar nature including those by the Global Straight Through Processing Association and Omgeo, a joint venture between Thomson Financial Services Group and The Depository Trust and Clearing Corporation. This will greatly simplify and standardize cross border communication between participants, clearing houses and depositories, thereby bringing important efficiencies to the market place.
SGX's STP Initiative
SGX has appointed a consultant, The Capital Markets Company (Capco), to work on the first phase. A working group has also been formed comprising representatives from a cross-section of the industry, including brokers, custodians, investment managers, insurers and the Monetary Authority of Singapore. The members represent industry interests and will help resolve issues with implementing STP, promote the implementation of STP in their respective sectors, and assist in obtaining and verifying information needed to build the business case and design architecture.
Phase 1 was kicked off in January 2001, and is expected to be completed in the third quarter. It includes the following elements:
STP Business Plan
The development of the business plan involves working with the industry working group to plan for the implementation of the complete STP initiative. The working group will explore possible impediments, develop the project implementation plan and identify key costs and benefits for industry sectors.
Business Architecture
This development will focus on designing the business functions and processes to be housed within the CPM and PAM.
Technical Architecture
Finally, the technical architecture will deliver the specifications for the CPM and PAM as well as a proof of concept to demonstrate the validity of the model.
STP Ready at end 2002
At the end of phase 1, CDP will provide the specifications and call for tenders from technology consultants to build the CPM utility. In parallel, participants will use the PAM specifications to build an interface with the CPM utility. Once the CPM is established, additional functions may be added, depending on user demand. Many of these value added services are expected to be defined by the industry working group but will only be implemented once the basic matching and affirmation functions are well established. The CPM is expected to begin operations at end 2002.
