What it means
Traditional trade processing involved many hand-offs. A trader agreed a deal, someone keyed it into an accounting system, another person sent a confirmation and a third arranged the cash and securities to move.
Each hand-off added delay and a chance of error. With STP, the information is entered once and flows automatically through every system that needs it.
These include the trading system, the risk system, the accounting ledger, the confirmation service and the settlement agent. Standard message formats and agreed data rules make this possible.
The benefits are shorter settlement times, lower processing costs and fewer failed trades. Settlement fails are expensive, because the parties may pay penalties or have to borrow securities to cover.
Firms therefore track their STP rate, which is the share of transactions processed with no manual touch. STP is not limited to securities.
The same idea applies to payments, loan applications, insurance claims and invoices, where data captured once moves through approval and posting without re-entry. A company with a high STP rate in accounts payable, for example, processes invoices faster and with fewer duplicate or mistaken payments.
Automation raises its own risks. An error at the start travels through the whole chain very fast, so checks on data quality, limits and exceptions must be built in.
Good designs send unusual items to a person for review instead of failing silently, which is known as exception handling. Implementation is usually a staged process.
Firms first map every hand-off in a transaction, then agree common data standards with their counterparties and finally automate one step at a time, measuring the STP rate after each change. Counterparties matter because the chain is only as automated as its weakest link.
In practice
Real-world examples.
Example
An asset manager sends a share order to a broker through its trading system. The confirmation, the booking in the accounting system and the settlement instruction all follow automatically. No one retypes the trade at any stage.
Example
A multinational company receives supplier invoices as electronic files that are matched to purchase orders and approved without human input. Only invoices with a mismatch go to an accounts clerk. The finance team reports that 85% of invoices now go straight through.
Example
A bank processes personal loan applications through an automated decision engine that checks identity, income and credit history. Straightforward applications are approved in minutes, while unusual ones go to an underwriter. The bank cuts its average approval time from three days to a few hours.
Formula
Calculation
STP rate = transactions processed with no manual intervention / total transactions
A brokerage processes 10,000 trades in a month, and 9,400 of them need no manual touch. STP rate = 9,400 / 10,000 = 94%. The remaining 600 trades need manual repair, and each costs about $25 in staff time. Manual cost = 600 x 25 = $15,000 a month. If automation fixes half of the exceptions, the cost falls by 300 x 25 = $7,500 a month, and the STP rate rises to 9,700 / 10,000 = 97%.Case study
Seen in the real world.
Clearwater Securities is an illustrative, fictional brokerage whose operations team retypes about 15% of trades because its systems do not share a common data format. Failed settlements cost the firm $400,000 a year in penalties and staff time.
The operations director invests $1,200,000 in an integration project that links the trading, confirmation and settlement systems. After the project, retyping falls to 3% of trades, and settlement failures drop by about three quarters, saving roughly $300,000 a year.
The project pays back in four years, and the staff freed from repetitive work move to monitoring exceptions. The illustrative lesson is that the benefit comes from removing hand-offs and bad data, and a payback calculation should include avoided penalties as well as labour savings. The operations director also sets a rule that any new product must be able to connect to the common data format before it is launched.
Watch out
Common mistakes.
- Assuming automation removes all risk, when an error at the start can spread rapidly through the entire chain.
- Measuring success only by headcount savings, when avoided failures, penalties and faster settlement are often worth more.
- Ignoring exception handling, which determines what happens to items that do not fit the standard flow.
Questions
People also ask.
What does straight-through processing mean?
It means a transaction is handled electronically from start to finish with no manual re-entry or intervention.
Why do firms measure the STP rate?
It shows how much of the work is automated, and a low rate points to costly manual repair and a higher chance of errors. Tracking it month by month also shows whether an automation project is delivering the savings that were promised.
Is STP only used for securities trading?
No, the same approach is used in payments, invoices, loan approvals and insurance claims.
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