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The International Depository and Clearing Corporation (IDC), a subsidiary of the National Clearing Corporation and the Depository Trust Company, has released a white paper proposing how straight through processing can be realized.
The paper, 'A New Processing Model for Cross Border Transactions', was released to 3,000 financial institutions at the end of September after ten months of negotiation and development by the IDC and a group of 15 (G15) financial institutions. It summarizes the consensus view of these financial institutions on the best way forward for true straight-through-processing.
The paper proposes to make trade agreements to separate transaction risk from settlement risk, to involve custodians in the trade process and to integrate settlement instructions with the transaction process, leading to faster settlement and T+0. It also aims to provide optimal client servicing, through a network effect. This reinforces the combination of fund manager, custodian and broker as compatible, rather than separate, entities in the trading process.
"The initiative began in late 1996, when two financial institutions approached us and asked if there was a way forward for straight-through-processing," says Bill Hodash, managing director of IDC. Then recently-formed, the IDC had been set up as a product development and marketing arm of its two parent companies. Since its main ambition was to serve the industry in defining and supporting strategic initiatives for securities processing, the two institutions thought it the best way forward. "We were there and we were ready to listen," says Hodash.
The initiators decided to involve more fund managers, custodians and brokers in the development team, getting a list of 15 willing participants. "We were interested in listening to what could be done for this industry, and how we could participate," says Simon Bennett, director of SBC Warburg Dillon Read, a member of the G15 and a co-chair of the European Istic Group. "These industry initiatives, such as Isitc, are there to help the industry and we like to take part," he says.
"The most important thing was that all of these parties were looking at the business environment in the same way: as a cross-border business world where progress was being made too slowly, and where there is a lack of connectivity between trading partners; where there is a proliferation of...