Web Services on Wall Street -- Inside STP

Straight-through Processing (STP) is set to revolutionize application development in the financial industry by providing developers a solution that automates the end-to-end processing of transactions for all financial instruments from initiation to resolution. In this feature, Gunjan Samtani, a divisional VP for Information Technology at UBS PaineWebber, describes how STP in combination with a web services approach will streamline back-office activities, leading to reduced failures, lower risks, and significantly lower costs per transaction.

Tags: Web Services, STP, Finance, Business Processes, Applications, Standards, Service-oriented Architecture,

Straight-through Processing (STP), a solution that automates the end-to-end processing of transactions for all financial instruments from initiation to resolution, is set to revolutionize the financial industry. 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.

STP's key benefits are as follows:
  • Better electronic connectivity among different entities involved in the trading cycle

  • Integration of front, middle, and back office applications, based on standards

  • Elimination of a lot of manual activities and redundant processes in the end-to-end processing of trade transactions

  • Higher accuracy of trade execution and settlement

  • Reduced operational costs

  • Shortened trade cycle

STP has the same significance to the financial industry as Supply Chain Management (SCM) has to the manufacturing industry and Customer Relationship Management (CRM) has to the service industry.

The critical parameters of STP that determine its success or failure across the entire industry include:
  • High availability and scalability to be able to support increased trade volume.

  • High security as the data exchanged among multiple entities is trade related confidential data.

  • Robust business services that can be plugged into any internal or external securities processing application.

  • Guaranteed messaging to ensure that each and every message surely reaches the destination.

Using a Service-Oriented Architecture Framework
A Service-Oriented Architecture (SOA) framework can enable financial companies to achieve their business goals by providing a service-based platform to integrate new and existing applications and systems with STP functionality, implementing industry standards, and building an infrastructure that would support the dynamic financial messaging required for continuous processing for all types of financial instruments. Service-oriented architecture can provide the foundation and Web Services can provide the building blocks for application architecture in order to achieve seamless trade processing.

A SOA-based framework is capable of providing support for multiple XML standards, such as ISO15022 and FpML, at the same time, and adding additional standards support without significant redevelopment effort.

With the use of Web Services as an enabling technology, STP-related problems and issues will shift from connectivity among different applications in-house and with trading partner applications to the content and structure of the information that is exchanged. The analogy here will be that Web Services will define the standard postal mechanism along with the envelope and addressing format for exchanging letters. What is inside the envelope (the content of the letter) will be defined by the XML-based business process standard, such as ISO 15022 XML.

Web Services, built on SOA, are a stack of emerging standards that describe a service-oriented, component-based application architecture. Web Services offer a platform-neutral approach for integrating internal and external applications, so that it can be used to integrate diverse systems, in a way supported by industry-wide standards rather than proprietary standards.

There are multiple benefits of using Web Services as one of the core technologies for STP, as follows:

1. Based on open standards
Since external STP requires integration of business processes across corporate boundaries using exchange of documents or messages, the communication among different systems should be based on open standards. Web Services fully leverage open standards, including Hyper Text Transfer Protocol (HTTP); Extensible Markup Language (XML); Simple Object Access Protocol (SOAP); Web Services Description Language (WSDL); and Universal Discovery, Description, and Integration (UDDI). Application-centric Web Services enable companies to integrate business processes without the constraints of proprietary infrastructures, platforms, and operating systems.

2. Easier Business Process Management
Web Services help to clearly separate business process logic and the participating business services for both internal and external STP, thereby making the development, execution, and management of these services much easier. The main advantage of Web Services is that companies can use Web Services interfaces for process management, logic transformation, and integration for legacy and packaged applications, instead of writing non-standards-based custom code for each application.

3. Easier Integration
A typical business process related to STP may be supported by multiple diverse applications such as C++, Java-based front-end systems; Java, C, C++ based middle office systems; and AS400, Mainframe-based legacy systems. It is virtually impossible to manage a workflow and execute the different tasks associated with it, which may require using APIs of other systems or exchanging messages with them, unless the underlying technology provides easy integration facilities.

4. Flexibility
Service-oriented architecture-based Web Services can provide the required flexibility for STP in terms of architecture and changes in configuration, control and standards in the business processes. This type of flexibility is not offered by the middleware existing today.

5. Better and Cheaper Customer Service
Both user-centric and application-centric Web Services can play a major role in customizing a range of financial and non-financial product packages suited for each customer's specifications and making it cheaper and faster to deliver. This can be achieved by assembling Web Services targeted for each such product and bundling them together. Of course the assumption here is that there will be servers and tools available that will make this orchestration of Web Services possible.

Bottom Line
Web Services offer a platform-neutral approach for integrating STP applications. The ability of a financial institution to have access to real-time trade-related information spanning across multiple companies, in-house departments, applications, platforms, and systems is one of the most important driving factors behind the adoption of Web Services. Financial institutions should first start using Web Services for their internal STP and for business processes that are non-transactional in nature, before they venture into using Web Services in external STP.

This article is a synopsis of a chapter on STP and Web Services authored by Gunjan Samtani for the book: Web Services Architectures and Business Strategies (Wrox Press). Samtani is Divisional Vice President, Information Technology, at UBS PaineWebber, and has several years of experience in the IT industry. He is a well-known speaker and author of several books and articles in the fields of finance and technology. He possesses multiple M.S. degrees in the fields of Computer Science, Management Information Systems and Computational Finance. His email address is gsamtani@ubspw.com.