Bellevue, Wash. - Frederick L.A. Grauer, former chairman and co-chairman of San Francisco-based Barclays Global Investors, has founded a new business that he expects to be on the cutting edge of the securities industry's transition to one-day trade settlement.
Mr. Grauer is co-founder of and an investor in StraightThrough, Bellevue, a financial technology company that provides automated electronic securities processing services (straight through processing).
He is no stranger to the high technology world. After 16 years at the helm of BGI, Mr. Grauer resigned as co-chairman in the spring of 1998 and developed an online merchandising business. He also became general partner at Angel Investors LP, Redwood City, Calif., which provided seed funding to Internet startups.
Mr. Grauer left Angel at the end of last year to go into business for himself, providing venture funding on his own. StraightThrough is one of his first projects, and it comes at a time when the investment management industry is facing its biggest technology challenge since Y2K.
The SEC has mandated the financial and investment industry expedite the processing of stock trades, directing it to shorten the handling of trades from five days now to one day by July 2005. The institutional investment management business has been slow to respond.
That's where StraightThrough comes in. To help meet the SEC's timetable, vendors are pushing straight-through processing, a relatively new technology. STP automates the buying and selling of stocks from pre-trade through trade settlement, eliminating most of the manual steps that stretch out the process.
Mr. Grauer's firm will offer StraightThrough Express, a program that will work with a money manager's existing trade-order management system and provides a full range of third-party software, including portfolio accounting, analyst and market data, portfolio analytics, order management, performance reporting and risk management software, Mr. Grauer said.
Five investors, including Mr. Grauer, provided initial funding for StraightThrough. Other investors were Whitney & Co. LLC, Stamford, Conn.; General Atlantic Partners LLC, Greenwich, Conn.; Capital Z Partners, New York; and SWI Inc., Toronto.
Mr. Grauer's startup company will run into stiff competition from established firms like Sungard Data Systems, SEI Investments Co., Accenture and Encompys Inc., all of which are vigorously promoting their own STP offerings.
But the long lead-time for full T+1 compliance and Mr. Grauer's deep roots in the investment management business are on StraightThrough's side.
Mr. Grauer noted the brokerage and custody banks are making progress in implementing straight-through processing. But, he said, money managers have been slow to address the issue.
"Investment managers are way behind the curve," he said. "We believe straight-through processing is the strongest solution for enabling them to deal with the demands of T+1. For them, it's not going to be simply installing some software in the back office," he said. "That's sort of like building a freeway and connecting it to a goat trail."
"I have a deep appreciation of what technology can do," Mr. Grauer said. "What we were able to do at BGI was to utilize technology and process automation to achieve a cost-effective way to handle massive amounts of transactions efficiently," and that's what he hopes to bring to the rest of the investment management industry, he said.