Dresdner Kleinwort Benson North America has made an unglamorous process-the automatic transfer of trading information between front- and back-office systems-a cornerstone of its technology.
The investment banking arm of Dresdner Bank Group of Germany sees strategic benefits in such "straight-through processing," or STP.
In early 1998 DKBNA hired a veteran in the field, Rahul Merchant, to automate trading-information transfer across what it calls the "four pillars" of its business-global finance, corporate finance, global equities, and global markets.
Straight-through processing "is becoming a way of life," said Mr. Merchant, an executive vice president who is head of technology and operations. "You have to do it."
It has become essential because the growing complexity of trading operations has increased the need for risk management, he said.
The process delivers consistent information to traders, risk managers, and back-office personnel, reducing confusion and the risk of human error, Mr. Merchant said. It also allows for instant access to trade information for real-time risk analysis, he said.
C. Steven Crosby, a partner at KPMG Peat Marwick in charge of global STP initiatives, said STP is an invaluable component of bank technology that "every financial institution needs to think about to secure competitive advantages and increase earnings."
Those who do not take it seriously face a "dangerous business risk," he said.
At Dresdner Kleinwort Benson North America, straight-through processing provides "quality-rich information so that we can take advantage of market opportunities," Mr. Merchant said.
"The ongoing savings in opportunity cost are substantial," he said.
Mr. Crosby of KPMG Peat Marwick agreed. "The outright risk savings are exponential," he said. "The impact of a missed capital event could be devastating."
The process has also saved money because trades need be recorded only once and front-office profit and loss figures need not be reconciled with those of the back office.
Mr. Merchant said DKBNA has improved earnings as a result of instituting STP in the dollar clearing operation.
Most banks view dollar clearing as a cost center, he said. "Our goal was to make a business out of it."
In 1998 a "two-pronged approach" of automating processing and increasing customer business boosted the client base by 20% and substantially reduced per-trade cost, Mr. Merchant said.
The clearing group, with the help of global finance, brought in new client business through increased marketing and cross-selling, he added.
"We have now reached a point of efficiency" where clients can be added without incremental costs, Mr. Merchant said.
Though achieving euro and year-2000 compliance weighed heavily on resources, the bank managed to link six to eight major trading and support systems, Mr. Merchant said.
The two biggest STP beneficiaries were the front-office and back-office systems of the equities and precious metals operations.
For its equities business DKBNA worked with the London group to develop a portfolio trading system that would seamlessly feed back-office systems. The precious metals system was also set up to be run from multiple trading locations.
The company is now streamlining reconciliations by creating a single unit to handle exception transactions across business lines. (Dedicated units for each trading group had done the job.) Trading systems from the fixed-income, foreign exchange, equities, money market, emerging market, and derivatives desks will feed data to back-office systems for processing. Exceptions will then be fed to the reconcilitation group through an automated system.
Exceptions have already been greatly reduced, Mr. Merchant said, and DKBNA is evaluating a number of vendor systems to further automate the process.
Next, he said, he will focus on automating the credit process from the application steps to portfolio monitoring and risk management. As a bank with a portfolio of nearly $25 billion "we know a lot about lending," Mr. Merchant said.
Year-2000 efforts have delayed the automation project, he said. He aims to have prototyping and testing done by yearend.