treasury practice FOREIGN EXCHANGE
THE SWITCH TO AUTOMATING G L O BAL TREASURY
OPERATIONS THREE YEARS AGO HAS FAR EXCEEDED
THE EXPECTATIONS OF ORACLE, AS GERI WESTPHAL
ON FOREX TRADING
hree years ago, we decided to automate
our treasury operations as part of a
corpora t e-wide initiative to globalise IT
systems. We believed that through
automation we could become more
flexible, more efficient and more profitable.
One of the areas where we saw immediate cost
savings was within fo reign exchange (FX). In 2000, we
were invited by Bank of America to become a
member of the client advisory board for FXall, and to
p a rticipate in defining the tools and functionality
necessary for an online portal in the FX industry to be
successful. This functionality included the ability to
trade with more than one bank, an efficient price
discovery tool and straight-through processing (STP).
We decided that FXall met our requirements and in
2001 we executed the first live trade on the port a l .
To d ay, we execute 98% of our FX activity
automatically through the platform.
It is no surprise that a recent survey from
Greenwich A s sociates showed that large corporations
and financial institutions transact an ave rage of
$26.6bn annually through online FX trading, and this
figure continues to rise. Among some of the largest
corporations and institutions, the ave rage is $54.5bn.
Oracle Corporation is the world’s largest enterprise software company, with annual
revenues of $10bn and operations in some 60 countries. The company develops, REAPING THE BENEFITS. In my view, the biggest
manufactures, markets and distributes computer software that helps customers re a son why online trading has taken off in such a big
manage and grow their businesses. Its applications software can be accessed with way is the level of integration and automation that
standard web browsers and can be used to automate business processes and to the portal model has ach i e ve d . Companies needed
provide business intelligence for marketing, sales, order management, procurement, a ccess to liquidity from all their banks and they
supply chain, manufacturing, service, human resources and projects. They offer a fully needed automation in order to achieve faster, more
integrated suite of applications built upon unified information architecture. ,
efficient pricing. I n i t i a l ly there was a fear that online
In 2000, Oracle centralised its treasury function by setting up Delphi Asset trading would lead to an environment wh e re personal
Management Corporation, a wholly owned subsidiary of Oracle, based in Reno, relationships between banks and customers wo u l d
Nevada, US. The Delphi treasury team is made up of eight people who perform suffe r. In fa c t, I believe the opposite has occ u r re d .
treasury related services, including daily cash management, investment management, Both banks and customers have freed up time to
foreign exchange and bank relationship management for Oracle and its family of 60 provide more strategic va l u e-added services. And, in
plus subsidiaries. Figure 1 shows results from its treasury transformation. an increasingly competitive market, those services are
ra p i d ly becoming more important to corporate
JAN | FEB 2004 THE TREASURER 31
treasury practice FOREIGN EXCHANGE
The benefits of online trading are fully realised when the majori t y
‘THE REAL REVOLUTION IN FX of banks used by a company such as O racle for online trading raise
HAS BEEN IN STP – THE ABILITY the level of their service across the board. This means providing
re g u l a r ly updated research and fo recasts online; automated pri c e s
TO STRAIGHT-THROUGH being returned quickly, e ven on large deal size s ; and fast and tight
PROCESS TRADES SEAMLESSLY swap pricing in tenors of up to one year. The banks that have
a l re a dy made these investments are now reaping the benefits.
THROUGHOUT THE ENTIRE The price discovery process for electronic FX dealing is
straightfo r wa rd . Our trading is centralised with subsidiari e s
TRANSACTION’ submitting trade re q u i rements to the central office for exe c u t i o n .
We have the ability to determine how we want to order the bank
quotes being listed, and the best prices are highlighted on screen.
FIGURE 1 On ave ra ge , we ask three banks for prices when there are
TREASURY TRANSFORMATION competitive trades. We calculate our cost saving on the pri c e
diffe rential between the best price quote and the second best pri c e
quote. We estimate that executing our FX trading online pro c e s s
Task Position at 6 Jan 1999 Position at 6 Jan 2003 has produced substantial cost savings by about $200,000 per year.
P ri c e , however, is just one component in the va ri a b l e . The real
Standardise re volution in FX has been in STP – the ability to straight-through
p rocess trades seamlessly throughout the entire transaction.
No standard bank model One global bank model T h e re is a series of steps to be taken after the trade has been
Average eight accounts per Average four accounts per dealt, including matching transaction details, confirming the deal
and arranging settlement. Automation of error- p rone manu a l
180 global bank relationships 100 global bank relationships
No global treasury management One global TMS
p ro c e d u res gre a t ly improves risk manage m e n t. At O racle, we have
system (TMS) One worldwide investment policy chosen Settlement Center to automate confirmation of deals,
Multiple policies netting and provision of standard settlement instru c t i o n s .
Settlement Center had the added benefit of alre a dy being
Automate and improve efficiency integrated to FXall’s trading platfo r m .
No global TMS One global TMS ALL SYSTEMS ARE G O. The advancement of this technology led us
Manual foreign exchange (FX) Straight-through processing to adopt the concept early and we have now ach i e ved STP across
Manual bank reconciliations (STP) for FX the full FX life cycle – from subsidiary exposure submission to trade
Manual tracking of STP for daily bank statements
execution, and from trade confirmation and settlement to
inter-company activity STP for inter-company loans
accounting. Ea ch month we enter into 50-plus financial hedges
Multiple policies STP for Investments
ICMS for investments – no STP
spanning more than 30 curre n cy pairs. We upload our FX exposures
directly from the O racle E-Business Suite into FXall for tra d e
Improve visibility and portfolio management execution. After exe c u t i o n , the trade details are downloaded back
into the O racle treasury application, part of the O racle E-Business
In-country finance headcount for In-country headcount reduced & Suite, then using the suite integration, it is sent dire c t ly for month-
bank reconciliations bank recs regionalised to shared end posting. Once aga i n , time is saved and the potential for error is
Manual journal entries for all service centre reduced. Without the willingness to consider new methods, we
treasury activity Full automation and suite might be still operating in the ‘old wo r l d ’ of telephone ord e rs.
Excess cash managed in-country integration
Another important benefit that acc rues from automation is the
Global treasury headcount = 10 Excess cash managed centrally
allowing for improved efficiency ability to create reports of all activities undertaken on the system.
and increased yield Recent events in the financial markets have highlighted the need
Global treasury assumed for corporations to be able to ge n e rate compre h e n s i ve audit trails.
management of 95% of By using FXall, we have a FX trading process that allows us to
worldwide cash with no ensure our compliance pro c e d u res are in line with current best
headcount increase. Headcount practice.
remains at 10
To sum up, at O racle we now have STP for all our global bank
a ccount statements, all inter- c o m p a ny loan activity, all FX and so o n
we will complete STP for all investment activity. The result is a
No corporate authority on local Centralised signing authority radically diffe rent way of trading FX – one that takes full adva n t a ge
accts Investments centralised – no y.
of the latest and most reliable tech n o l og We are now seeing many
Local execution of investments local authority other global corp o rations follow suit. The benefits of automation
Investments held at individual Global custody agent a re just too compelling to ignore .
banks Real-time policy compliance
After-the-fact policy verification Global visibility of cash and G e ri Westphal is Vice President/Assistant Tre a s u rer at O racle
Lack of visibility at corporate treasury activity leading to better
Co rp o ration.
level reporting, tighter controls and
increased investment returns firstname.lastname@example.org
32 THE TREASURER JAN | FEB 2004