THE O R ACLE ON FOREX TRADING Ebook

							                                                                              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
             POINTS OUT.




THE ORACLE
ON FOREX TRADING
                                                                                         T
                                                                                                       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
                                                                                         treasurers.


                                                                                                            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
          subsidiary                             subsidiary
                                                                                       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
Increase control
                                                                                       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          geri.westphal@oracle.com
                                                                                       www.oracle.com


32 THE TREASURER JAN | FEB 2004