Frequently Asked Questions
on
Straight Through Processing (STP)
What is STP?
"The processing of a trade, whose data is compliant with internal and external requirements, through systems from post-execution through settlement without manual intervention".
“The Securities Industry Association, US
A”
It means seamless integration of trades from initiation to settlement without manual intervention. STP aims at maximizing automation so as to reduce human errors, increase speed of operation and reduce failed trades.
Straight Through Processing (STP), a solution that automates the end-to-end processing of transactions for all financial instruments from initiation to resolution.
STP will streamline back office activities, leading to reduced failures, lower risks, and significantly lower costs per transaction. It encompasses a set of applications, business processes, and standards that will redefine the settlement and processing paradigm within the capital markets industry.
What are digital certificates?
A digital certificate is an electronic means of establishing your credentials when doing business or other transactions on the Web.
A digital certificate is issued by Certifying Authorities. It contains name, a unique serial number, expiration dates, a copy of the certificate holder's public key (used for encrypting and decrypting messages), and the chain of trust of the certificate-issuing authority so that a recipient can verify that the certificate is real.
What is digital signature?
A digital signature is an electronic signature that can be used to authenticate the identity of the sender of a message, or of the signer of a document.
It can also be used to ensure that the original content of the message or document that has been conveyed is unchanged.
Like a digital certificate, a digital signature is verified by a Certificate Authority, and is attached to an electronic message so that it verifies that the sender is really who they claim to be.
What is a digitally signed document?
A digitally signed document is a document, which is issued by signing through sender’s private key electronically. This does not mean that the person is physically signing his signature. The Private key of the sender is always in personal possession of the sender and the recipient can confirm the same through the public key.
What is the need for STP?
Although the financial industry has reduced its T+5 settlement cycle (settlement 5 days after the actual trade has been done) to a T+2, it has been a real laggard in any kind of business process management and technological advancement as far as trade settlement and processing are concerned.
A shorter settlement cycle puts pressure on the entire delivery channel. Failed trades increase cost of transactions making the markets overall expensive and risky to invest. Furthermore, the flow and format of data from one system to another, such as from a trade pricing system to a settlement system and from a risk management system to a collateral management system, even within the company occurs in non-standard proprietary format. The issue of non-standard formats is multiplied when communicating with external trading partners, as each company may use a different format.
Straight Through Processing (STP) aims to bring in non-duplication of work, efficiency and automation of the manual procedures right from trade initiation to settlement processes. STP uses ISO standards for the formats used for issuance of contract notes in electronic forms and confirmations done by custodian/ brokers/ FII’s/ FI’s etc.
India is moving ahead to trading cycle of T+1. The STP, being the pre-requisite, will ease the achievement of this T+1 trading cycle.
What are the advantages of STP?
Reduced risk
Automation of manual process minimizing errors
Improved operational efficiency in handling larger volumes
Facilitates movement towards shorter settlement cycles (T+1)
Lower cost per trade
Timely settlement of trades and instructions
Eliminates paper work and minimizes manual intervention
Enables increased cross border trading (FII trades)
Greater transparency with clear audit trail
Increases competitive advantage of our markets
Messaging standards as per ISO 15022 standards
What are the advantages for the Brokers/ Custodians & Institutions?
Brokers
Instant delivery and highly cost efficient way of sending Contract Notes for institutions in SEBI mandated structures. (IFN 515)
Huge savings in Back office paperwork and stationery etc
Easy to use file upload system, utility made available to convert a flat file in to ISO structures.
Works on both BSE network and Internet
Zero cost hosted solution including hardware, software, Internet and security Infrastructure. Multi Exchange capability
Institutions
Quick and efficient way of receiving contract notes (IFN515),for sending confirmation of acceptance/ rejection to the broker (IFN598), settlement instructions (IFN540 to 543) to custodians & receive response (IFN544 to 547 on day 1.
Availability of the system on Internet.
Extensive search & query functions made available.
Zero cost hosted solution including hardware, software, Internet and security Infrastructure. Multi Exchange capability.
Easy to use file upload system, utility made available to convert a flat file in to ISO structures.
Custodians
Quick and efficient way of receiving contract notes (IFN515),for sending confirmation of Match/ Not Matched to the broker (IFN548), receive settlement instructions (IFN540 to 543) from institutions & send response (IFN544 to 547 from day 1.
Availability of the system on Private Network & Internet.
Extensive search & query functions made available.
Zero cost hosted solution including hardware, software, Internet and security Infrastructure. Multi Exchange capability.
Easy to use file upload system. Facility to upload the digitally signed ISO file in to the system
Utility made available to convert a flat file in to ISO structures as input in to BSEwebx system.
Does any regulatory authority mandate STP?
SEBI has mandated STP vide its circular No. DNPD/Cir-22/04 Dated April 01, 2004. Currently, only Institutional trades done by the brokers custodians and Non – individual entities are mandated to implement STP from 1st of July 2004.
List of SEBI circulars for STP:
Circular Number: DNPD/Cir-9/04 dated February 3, 2004
Circular Number: SEBI/MRDSE/Cir-11/2004 dated February 25, 2004
Circular Number: DNPD/Cir-22/04 dated April 01, 2004
Circular Number: DNPD/Cir-23/04 dated April 27, 2004
Circular Number: DNPD/Cir-23/04 dated May 26, 2004
Circular Number: DNPD/Cir-25/04 dated June 10, 2004
What are the international messaging standards prescribed for the same?
Various international messaging standards viz. ISO 15022, FINXML, FIX, FPML, OFX etc. are suggested. SEBI has prescribed that Indian capital markets have to use ISO 15022 standards as it is the most common language used in the Financial services sector.
IFN 515, 540 to 547, 548 & 598(similar to 548) have been specified by SEBI as per circular dated10th June 2004.
From where can I get these ISO file structures?
These structures will be provided by BSE to all the users of the system.
BSE will provide users of STP the utility for converting the flat files into the ISO files, which can then be uploaded into Webx.
Custodians will also be able to directly upload ISO messages in to the system
Who will provide the flat file structures?
The flat file structures will be provided by BSE. These structures have also been made available to the Back Office vendors of the Brokers.
What will be the connectivity for using BSE Webx’s STP system?
STP provided by BSE works both on private network (BOLT Network either through leased line or VSAT) and Internet.
Custodians and brokers can operate through Private network and Internet.
FIIs / FIs/ Other institutions can operate through Internet.
What is the cost for setting up infrastructure to avail connectivity from BSE?
Most of the custodians and brokers are connected with BSE either through VSAT or Leased line so there is no need for further investment on infrastructure set up to be done by the custodian/ brokers of BSE. They can also avail of this system on the Internet.
Non – Individuals will get the access to the system through the Internet connection
What is the pricing mechanism of BSE for STP?
If all the users are using the platform of BSE i.e. if the broker, custodian and Institutions are on the BSE platform, currently no charges are levied to any of the entities.
If the messages are sent to end users on the other service providers then a minimal charge of Rs.4 per message is levied to the member, which is a charge levied for the same by STP centralized HUB.
What are the pre-requisites for availing this facility provided by BSE?
The pre requisites are as follows
Register with BSE Webx.
Procure a digital signature (No other Digital signature will be allowed on BSE webx platform) from BSE RA office under TCS CA.
Which participants of the market can currently use Webx system for STP?
Following participants of the market can use Webx system for STP:
Brokers
Custodians
FII’s / Mutual Funds / FI’s / Other Institutions.
How secure is it to use STP on the net?
Secured on world-class security infrastructure and policy
Replete with firewalls to ensure a reliable and hassle free transaction capability.
BSEWEBX uses 128-bit SSL encryption over the net from Verisign.
Use of PKI infrastructure for non-repudiation