A funny thing happened to U.S. financial institutions as they spent more on operations to keep up with growth in trading: They backed into straight-through processing, the holy grail of handling a trade electronically from start to finish.
Straight-through processing is "the most overutilized, misunderstood term in financial services," according to a new report by Adam Honore, senior analyst at financial industry consulting firm Aite Group LLC, Boston.
"We knew nobody was spending on technology for STP," Mr. Honor%E9; said in an interview. "We wanted to look at what they were doing, given their operational costs are going up and up and up."
He estimated that U.S. financial firms will spend $15 billion on operations — brokerage, clearing and exchange fees — this year, up from $12 billion in 2005, and he forecast a compound annual growth rate of 18.95% over the next three years.
Operational budgets remain stagnant, and the growth is simply to keep up with increasing trade volumes, so operations executives have added small, incremental trade process improvements that have combined to get them to STP, he said. "Nobody is really ripping up the back office and throwing in a new one. Instead, "they're finding ways to implement workflow (improvements) to allow them to create agility."