October 03, 2002
All Custodians, Stock Exchanges/Depositories
Sub : Introduction of Straight Through Processing.
The Indian securities market has undergone through a rapid expansion during the last decade such as dematerialization, rolling settlement, shorter settlement cycles etc.
Presently trades are settled in the stock exchanges on T+3 basis. Further, it is also decided to gradually move from T+3 settlement period to T+2 and T+1 settlement period by March 2004.
The process of trade settlement starting from origination of trade till execution and settlement of the same involves manual entry and re-entry of the same trade particulars by the different market participants. This manual process is time taking and subject to errors because of manual intervention repeatedly. For smooth functioning of T+3 settlement period or shorter period and to avoid manual intervention a single automated process from origination of trade though to settlement is the need of the hour. Therefore, the concept Straight Through Processing (STP) which is basically capturing and processing through settlements of a trade particulars electronically without manual intervention, is required to be adopted.
In order to examine the feasibility of STP in the Indian markets, SEBI constituted a committee comprising of representatives from various market intermediaries and from the Reserve Bank of India.
The Committee in its report has observed and recommended the following :
Markets throughout the world are continually looking for new investment opportunities. Foreign Investment into India will be determined, not only, on investment opportunity but also on the operational efficiency and risk profiles of the Indian market. Introducing a process which increases operational efficiency will only enhance India’s profile and therefore its attractiveness to foreign investment.
Further, reducing the settlement cycle, the time between execution to settlement, will eliminate many of the risks associated with trade processing. Achieving seamlessness will be an enabler for these shorter settlement cycles to assist both domestic and cross-border trades in Indian securities.
Adoption of ISO 15022 messaging standards by the market participants.
Electronisation of contract Notes.
Connectivity among the market participants and implementation of STP.
It has been decided to accept the committee’s recommendations and introduce STP for electronic trade processing with a common messaging standard i.e. ISO 15022 with effect from December 02, 2002.
You are advised to bring this to the notice of all your constituents and take necessary steps to implement STP by the aforesaid date.
Please acknowledge receipt.