Wednesday, September 20, 2006

"The Frankenstein's monster of acronyms"

Some of you may remember Tim Lind, a former senior analyst at TowerGroup, who aroused controversy in the banking industry (not a difficult thing to do) when he penned a 2003 report,"A Eulogy for STP and the Asset Manager." In it he described STP as the "Frankenstein's monster of financial acronyms", suggesting that whilst the acronymn had served the industry well in the past, it meant bugger all to asset managers who were more concerned with portfolio returns, client service and the bottom line.

To get the attention of asset managers, Lind said the banking industry needed to articulate how automation would lead to an improvement in portfolio return, client service and the bottom line. Ironically enough, the reason why I have delved into the history books to recount Mr Lind's poignant remarks (which are just as poignant today), is that the industry appears not to have heeded his cautionary tale.

At a fifth anniversary reception in London earlier this year, where members of the post-trade solutions provider OMGEO patted themselves on the back for five years in business,Tim Lind's comments about STP were quoted out of context - something which us journalists are usually accused of.

Interpreting Lind's comments as suggesting that STP was no longer relevant, Omgeo's riposte was that STP was alive and well and that its central trade matching facilities and other post-trade solutions had helped investment managers and broker/dealers reduce costs and manual processing inefficiencies.That may be so, but Lind never suggested that STP was dead - merely that the acronymn had been overused and meant little to investment managers, who everyone blamed for low STP rates.

Unfortunately, whilst there may have been some progress in minimising costly errors from manual processes and automating things like corporate actions, there are still a considerable number of investment managers using faxes and telephones to confirm trades, and that is likely to continue if the industry insists on using acronyms that do not clearly state the business case for moving to STP - STP in and of itself is not something that causes most investment managers to lose sleep at night. The same perhaps could also be said for other acronyms being bandied about; SOA, ESB, etcetera. Come back Tim Lind, all is forgiven!

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