There is a general impression that going from our current T+3 (Trade Date plus 3 days) to T+0 is THE move to Straight Through processing. In fact, we are only at T+3 because our clearance and settlement gurus have had to create a load of what are known in the IT business as "Work Arounds", specifically using IOU's as interim substitutes for real clearance and settlements.
In an optimal environment, STP requires the presumption of the integrity of the participants intent to act honorably, and to not to try and "edge" each other. The reality is quite different. Whether T+3 or T+0, our current system preserves the right of participants to electronically counterfeit securities of all types, with the principal justification being that they are contributing to more efficient markets, increasing liquidity, while at the same time narrowing spreads.
STP requires the integration of many different independent elements' activities to function in a near real time series of interfaces between custodians, clearing houses, broker-dealers, banks, market makers, transfer agents, issuing companies and entities, and customers, both institutional and retail. This coordination hasn't achieved true critical mass buy-in except in the form of lip service, because no one could force these politically and economically competitive elements to work with one another except by granting certain elements exclusive monopolies over certain functions to some of the players. This is inherently inclusive of conflicts of interest, whether enlightened or not.
The division of these functions was originally conceived of to control the abuses of self dealing, but this very division, such as was embodied in the now defunct Glass-Steagall Act separating banks from investment banks from the 1930's. Many of these lines have become blurred, or disappeared entirely. The result is a overall market alignment that encourages the disparate elements to deal with each other out of sight of those with an interest in both oversight and function.
The result is a bastardized failure of a system that has negatively impacted the very credibility and integrity of US markets as a whole, whether in equities, fixed income, commodities, currencies, physicals, forwards, credit swaps and more.
What is a potential answer? I have seen it, and I like to think I will be part of the ultimate solution globally. I am of the strongest possible opinion that all functions must be integrated vertically and horizontally, but around immutable principals of real money buying real securities in real time. How can this occur? Manipulative practices must be shut down in all forms. Naked short selling and related counterfeiting must be stopped. Failures to deliver must be stopped, and where there are previously existing positions, there must be severe penalties imposed on the miscreants.
When these rules are in place and fully explained, a system giving full transparency must be put in place that has the characteristic of being entirely conceived of for the purpose of operating all market activities on an INSTANTANEOUS DELIVER VERSUS PAYMENT, a system in which all trades clear and settle in literal real time, meaning the technical standard of 30 Milliseconds.
This has to be done in an environment where the political process has not been bastardized so totally as to make such an integrated system impossible.
Can this happen in the US in the next 5 or even 10 years? I will take that bet and give odds against. I have seen the future, and if I were to offer it tomorrow, I could strip out half of the public company market in weeks from an environment not offering this capability.
Who can stop this? Only the States, who will be the biggest victims of thousands of their companies deregistering to move away from the US. Maybe only a slap in the face of this magnitude will wake them up.
I am over length here, so I will end. Remember this piece, ALL OF YOU.