Japanese STP Of OTC Derivatives Needs Upgrading, Says Celent

Celent releases SmartStream sponsored research examining attitudes and approaches to delivering STP in Japan. The report, Post Trade Processing in Japan Back and Middle Office STP at Brokerages, Banks, and Asset Managers examines the state of STP in Japan across

By None

Celent releases SmartStream-sponsored research examining attitudes and approaches to delivering STP in Japan.

The report, Post Trade Processing in Japan: Back and Middle Office STP at Brokerages, Banks, and Asset Managers examines the state of STP in Japan across asset classes, including derivatives, equities, foreign exchange, cash, and fixed income. Conducted through a survey of domestic Japanese brokerages, commercial banks and asset managers, the report identified a number of issues affecting the operations at Japanese financial services firms.

Asset classes in Japan remain siloed across multiple business lines, characterised by fragmented systems that limit potential efficiency savings. Of the three financial sectors surveyed, asset managers in Japan are placing the most emphasis on improving levels of STP, while banks are placing the least emphasis on this area.

While equities and FX have high levels of STP in Japan, less attention has been paid to improving derivatives, fixed income and cash processes. OTC derivatives in particular have grown significantly among traditional buy side investors such as pension funds. This growth, increased cross-border trading and the adoption of advanced execution technologies are placing further pressure on firms to improve operations in the middle and back offices.

However, while the demands placed on post-trade processing infrastructure have evolved, the tools needed to support this change have not. The report reveals that while the transaction flow between systems has been automated, little progress has been made in automating workflow for exceptions handling or corporate actions.

The survey shows that STP is lacking in over-the-counter derivatives, which have seen increasing volumes in Japan among traditional buy side investors such as pension funds, and this is challenging firms to develop methods for processing them efficiently, says Neil Katkov, senior vice president of Asia Research group and author of the report, Celent.

Firms also tend to overestimate the STP levels in their operations, partly because they tend to not include exceptions handling or workflow issues in their definition of STP.

The Celent research highlights some critical operational issues for Japanese firms, particularly with regard to exception managements role in the STP flow, says Richard Cummings, regional director, SmartStream, Asia Pacific.

In our experience many firms tend to take a wait and see approach to their infrastructure, preferring wholesale change to incremental changes in IT. However operational risk concerns in the current financial climate may act as the catalyst for firms to introduce greater levels of automation. Simply throwing more people at the problem, as 34% of respondents to this survey are, is not a long-term solution.

L.D.

«