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What is straight through processing and how does it relate to T+1?

T+1 refers to reducing the number of days to settle a security trade from the current three business days to one business day. At present, if you were to call your broker and ask him or her to buy 100 shares of XYZ, the process of entering the order, getting confirmation, transferring the cash and stock and reporting the final transaction takes three days, and is known as T+3.

The Canadian and American securities industries had set June 2005 as the deadline to move from the current system of settling transactions within three days after the trade to one day (T +1). But in summer 2002 the Securities Industry Association in the US stated that next two years should be spent concentrating on various straight-through-processing initiatives rather than shortening the settlement cycle from its current three-day timeframe (T+3) to one day. The new key projects include: improved processing of institutional trades; electronic book entry to replace physical securities and payments, and a range of other automation projects which address the processing of corporate actions, stock lending, syndicate underwriting and other operations functions. A further evaluation of the process required to shorten the settlement period will likely take place in 2004. This evaluation will be conducted by the Canadian Capital Markets Association (CCMA) in consultation with the Securities Industry Association (SIA) in the U.S. Canadian initiatives include developing an institutional trade matching system and completion of a set of standards for best practices. The main reasons for the delay in moving to T+1 are the enormity of the task and economic concerns. STP is a more manageable undertaking.