National Stock Exchange

A matter of equal exchange

The NSE IT team had a mission to converge and connect users of different standards to hasten the speed of transactions. Not only did NSE deploy a suitable solution in just 6 months, it took a quantum step towards the target of T + 1 day transaction. by Deepali Gupta

NSE's Straight Through Processing (STP) central hub is the first of it's kind around the world and appears to be a major step towards a T + 1 day transaction. A similar project was initiated in the US, but it never found a logical conclusion. According to the NSE team, no one in the world has successfully implemented STP due to the lack of clarity on where to begin and how to proceed.

That’s why NSE won the Computer Associates Intelligent Enterprise Award 2004 in the BFSI category.

So, where did it begin?

It began with Security and Exchange Board of India's (SEBI's) attempt to shorten the settlement cycle. Several players jumped at SEBI's demand for a seamless data flow solution.

What emerged were four main players and each was still unable to communicate with the other. That meant as long as two clients were on one service provider's network they could interact, but if they subscribed to two separate service providers they were largely isolated from each other. And the transaction settlement across service providers took longer and was done manually, which in turn left room for uncertainty and error.

At this point, with SEBI's aim to reduce the transaction time to T + 1 in mind, NSE stepped in and suggested the implementation of a messaging hub that would interpret all the formats and enable different networks to converse.

"The implementation had both triggers—business need and technical solution that was presented to the business," said Satish Naralkar, CEO, NSE.IT, who handles all technology functions of NSE.

What's Innovative?

Sometimes the most innovative tool is made of very simple components, but its overall functioning redefines the way people work. That is true for a paper clip, and for this solution NSE has put forth.

The implementation does not have any complex, emerging technologies in it. However, its impact on the number of users and the potential to impact so many more is what makes the STP Central Hub the winner of the Computer Associates Intelligent Enterprise Award.

"The solution is more connectivity-centric than application-centric. So, the technology, and development did not require intensive work. We just had to keep in mind reliability, security, standards, scalability, and other aspects like audit trails," explained Naralkar.

Small parts of a big whole

The STP Central Hub comprises a multi-tiered model and is designed to encapsulate the complexities of the messaging layer from other applications. The architecture is suitable for processing a large number of transactions, scalable, and fault-tolerant. The Hub according to the NSE.IT team is specially engineered to meet the requirements of the global financial community.

The salient features of the system are as follows:

• It has a real-time asynchronous message-driven system
• The processes can be distributed across multiple machines to achieve scalability
• It supports a fault-tolerant architecture with load balancing and clustering
• It supports any messaging protocol and uses the ISO 15022 messaging standard
• Automated messaging facilities
• Uses digital certificates for authentication

Actions and reactions

Considering that 17 lakh transactions take place on the Stock Exchange everyday, the impact of a Hub that facilitates and speeds-up the process is huge. Thanks to this implementation and features like automated trade communications, the Exchange has seen an improvement in operational efficiency that results in fewer manual errors and redundant processes in end-to-end processing of trade transactions.

Since the uncertainty between all parties on the status of the trade has reduced, the operational risk on trade transactions has reduced too. Sending of physical notes by fax, courier service, printing, storage, and retrieval are no longer required.

The operational cost of every transaction has thus decreased, and has reduced the time for allocation and confirmation by eliminating duplication of efforts and minimizing back-office processing. In addition to that, since batch-processing has been eliminated, it ends fragmentation of work.

Reduction of the settlement cycle can prove to be fairly lucrative for all—the market, exchange and the brokers in the long run. Faster trade translates into more trade.

Hurdles at hand

Like everything else in the world, the implementation of this project too came with its own set of problems. The first was that testing and actual productions were extremely unlike.

"You can never generate the same kind of numbers and variables in the testing phase as in the actual situation," elaborated Naralkar. The first concern immediately became, to ensure compatibility between the service providers.

More importantly, Naralkar indicated, human relation problems crop up depending on what part of the system is functioning correctly and which is not. For that Naralkar said, that well-debated agreements and responsibilities were isolated for every party.

"Complete vendor neutrality had to be maintained," said Naralkar, "and SEBI had taken charge to ensure that. In fact getting the accord to allow NSE to own the main hub took a while to obtain for that reason."

Future roadmap

Performance-related issues are bound to crop up every now and then when using a general standard rather than a proprietary standard. Naralkar and his team intend to continue tweaking the software as it finds its natural evolution. That in Naralkar's opinion would be in the case of globalization, when this hub would have to handle service providers from around the world.

Deepali Gupta can be reached at: deepali@networkmagazineindia.com