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May 31, 2000

Data Without Stops

By David J. Csiki

Straight through processing, or STP, is now possible.

Technology can enable data to flow uninterrupted in the trade execution chain: from order entry to clearance and settlement. No manual intervention is necessary.

The most critical element for money management firms in pursuit of genuine STP is seamless integration between front and back-office systems.

Updating portfolio accounting systems with nightly batch files or, worse yet, manually inputting the day's trades, is time consuming and prone to errors. That's the old method and since it requires oversight by staff, it is inefficient. Their time could be better utilized.

Updating Trades

INDATA and other vendors use Microsoft's SQL Server database. With a common SQL database, trades are updated to the back office as they occur during the day. That allows trade processing at the Depository Trust Company several times each day, as well as the ability to operate in a T+1 (or even in a T+0 environment).

An industry-standard programming platform is also a key facilitator of STP.

Microsoft tools is used by INDATA for other applications, such as report writing. The benefits of a front-to-back office solution based on a single industry-standard database platform are enormous. The main benefits include the ability to handle increased trade volume (as well as the ability to access alternative liquidity sources.)

By automating the interaction between portfolio managers and traders, each department can focus on its core function: making investment decisions, getting the best execution. That requires software that provides comprehensive modeling tools. These can help managers generate orders and check compliance within seconds.

Similarly, traders can use technology to route equity orders to the sell-side and to gain access to alternative sources of liquidity via electronic communications networks. This significantly reduces errors. At the same time, it gives traders the ability to work large groups of orders more effectively. Having a FIX-compliant trading system is also a mission-critical part of the STP equation.

Another benefit of a front-to-back office solution includes enhanced organizational efficiency. The automation of trade order management functions, combined with the ability to give all users access to accurate and up-to-date information across the entire organization, streamlines the way the firm operates. By using a common SQL database, for example, requests for data can be satisfied by each user individually, regardless of job function, instead of relying on operations staff to process the request. Software users are empowered to maximize their role within the organization.

Yet another benefit of a front-to-back office solution is better service to clients, which includes Internet-enabled reports. By having current and accurate information across the firm, portfolio managers, compliance officers, client service and marketing staff can generate reports with up-to-the-minute information on holdings, performance, or any one of several hundred other reports.

Indeed, technology improvements have now enabled this function to be taken to the next level. Using Microsoft Access as the system's report writer, users can generate customizable client or internal reports integrating text and graphics. They can e-mail them to clients or export them in an Internet-enabled format. Firms using this technology can service their clients in real-time, while moving toward a paperless environment.

A final benefit of the front-to-back office solution is open and unrestricted access to data. An open architecture system, unlike those built with proprietary databases, gives users unrestricted access to data. This data can be imported or exported freely from the system in standard file formats, enabling users to reconcile holdings and transactions with custodian banks, integrate data feeds from other vendors, etc. This allows investment managers to interface with custodian banks without relying on proprietary products or technology.

The bottom line: Grow your assets, not your overhead.

David J. Csiki is vice president of sales and marketing at INDATA, Greenwich, Conn.-based provider of enterprise software solutions for investment management firms.