I didn’t mean to make this a series of articles, but it has become one.
It’s not actually me having a pop at ISO, but the fact that discussions have been on-going about STP for so long, and now I know why it’s not in place.
That’s the Ignore Standardising Operations group, not the International Organisation for Standardisation, although they are related.
The Ignore Standardising Operations group have been around since time immemorial and, in capital markets, are clearly responsible for separating buy and sell side, front and back office, broker from clearer and more.
It is this market that illustrates the issue well, as it’s the market that created the term STP, and it is this market that I spent some time with this week at the Tradetech Post Trade Conference.
This conference aligns closely with the CAS-WG that we launched earlier this year, and I finally crystallised in my own mind what the problem is.
It’s pre and post trade.
It’s buyer versus seller.
It’s proprietary versus open.
I can illustrate this point well in that I faintly remembered a very old initiative yesterday called PORT.
From a report I wrote on fund management for the Financial Times way back in 1997:
PORT is ‘An industry led formal entity with dedicated resources to drive the best solution for the future infrastructure of Global financial markets.’ There are two components to this. One is the formal entity to facilitate interoperability and regulation of standards that is industry owned and run. The second is facilitating the creation of a logical network with a guaranteed level of security and service, performance and reliability, and that conforms to industry standards.
The report discussed PORT as a potential solution to bring together the new pre-trade standard, FIX, and the existing post-trade messaging standards of SWIFT through an intranet-based solution.
It died a rapid death as no-one wanted to bring pre- and post- trade together, and it didn’t have a strong business driver.
After all, the players in the pre-trade front office world are very different to those in the post-trade back office environs.
The front office is full of bulge bracket brokers, high frequency traders and algorithmic dealers, careful and considered fund managers and pension funds, and treasurers trying to get the most out of their working capital. The back office is the slower world of clearing and settlement, custodians and processors, collateral management and network management.
These are very different worlds and the two have remained determined to stay apart, which is why we don’t have STP in the capital markets.
FIX only worked, for example, because the largest fund manager, Fidelity, told all their brokers that they wouldn’t trade with them if they didn’t use it.
SWIFT only worked because interbank processing was insecure using telex and a new secure messaging system was needed.
Ever since then, there has been no burning need to bring the two together and this is why interoperability and integration has not happened.
Think about it.
After PORT, there was the Global Straight Through Processing Alliance (GSTPA).
Then there was the unificaiton standard, ISO 15022.
There was the Linkup Alliance and Code of Conduct in Clearing and Settlement.
Now there’s, the new UNIFI standard ISO 20022 along with Legal Entity Identifiers for all derivatives instruments using ISO 17442.
All of this is encapsulated in the investment roadmap (download) and more.
All of these efforts are meant to harmonise, standardise and integrate the markets so that they can work together in a seamless, interoperable way … but I suspect no-one wants it that way.
A little like Esperanto as a European language, you only see an agreement of standardisation occur if market forces demand it.
That is why the global language became English, the standard operating systems were IBM and Microsoft, the standard for consumer technologies is Apple, and the standard for payments messages is SWIFT.
It is why the only way to break this cycle and bring harmonised standards together for Straight Through Processing, is for the regulator to make it so.
This is certainly the case with clearing and settlement, where the self-regulating and self-managing approach to harmonisation failed.
It will also be the case with integrating the pre-and post- trade worlds, the front and back office worlds and the global and regional worlds of capital markets.
And perhaps, just perhaps, once it’s all done and dusted, we will achieve Straight Through Processing.