Sebi proposes STP overhaul to cut costs and reduce concentration risks

With a decentralised Application Programming Interface (API)-based model aimed at reducing costs, lowering latency and improving service delivery for market participants, market regulator Sebi on Tuesday proposed a major overhaul of the existing Straight-Through Processing (STP) framework seeking to replace the current centralised hub-based structure, PTI reported.In a consultation paper, Sebi proposed removing the current STP Centralised Hub used for transferring messages between different STP Service Providers (SSPs). Under the proposed framework, message exchanges would instead take place through direct API-based connectivity between SSPs.Under the new structure, SSPs serving different STP users will be required to provide standardised API endpoints based on agreed protocols and data formats, allowing secure and seamless exchange of messages without routing them through a centralised system."This would also enhance scalability and cost-effectiveness of STP framework while supporting the transaction volumes of institutional trading," Sebi said.The regulator said the proposed changes would not require any modifications at the end-user level, including for stock brokers, fund houses and custodians.According to Sebi, the revised structure would "likely encourage more SSPs to participate, thereby mitigating the concentration risk with single large SSP and improving value added services by SSPs to STP users".STP enables automated end-to-end processing of financial transactions and facilitates the exchange of various messages among market participants, including Electronic Contract Notes (ECNs).Sebi said its analysis of STP traffic between April 1 and December 31, 2025 found that 95-99 per cent of all STP messages were routed through a single SSP, creating a significant concentration risk.The regulator also pointed out that because inter-SSP messages currently move through a single STP Hub, the framework faces the risk of a potential single point of failure.Sebi also noted that the cost and latency involved in routing messages through the central hub could encourage market participants to consolidate operations with a single SSP, worsening the concentration issue.At the same time, the regulator said negligible traffic through the STP Hub indicated that it was no longer serving its intended purpose of enabling broader interoperability.To improve operational efficiency further, Sebi also proposed an optional API-based message exchange mechanism for STP users serviced by the same SSP.The regulator said the additional mechanism would complement existing upload and download systems and help minimise manual intervention, reduce human errors and improve security.Sebi has invited public comments on the proposals until June 9.