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					Cash Management and Payments
 Quantifying the Value of Intra-Day
      Liquidity Management

                    Laurent Franceschetti
                      Senior Consultant



                         Consulting for Banking Automation                                  1
    Proprietary and Confidential not to be re-used or distributed without prior agreement
                                 from Laurent Francescetti.
Cash Accounts

                                           Central Bank



                                                                         Correspondents

    Bank



                                                                           Custodians

                          Consulting for Banking Automation                                  2
     Proprietary and Confidential not to be re-used or distributed without prior agreement
                                  from Laurent Francescetti.
Current Trends
• Clients want faster execution
• Clients want more transparence
• Settlement time is going down (T, T+1, T+3)
• Integration between Securities and Cash
  Management (accounts with custodians, repo,
  etc.)
• European and Global Correspondents

           How to perform the cash
          management during the day?

                             Consulting for Banking Automation                                  3
        Proprietary and Confidential not to be re-used or distributed without prior agreement
                                     from Laurent Francescetti.
Problem


 How can we manage the cash accounts with all
   correspondents in a way to optimize the
          management of liquidity?




                           Consulting for Banking Automation                                  4
      Proprietary and Confidential not to be re-used or distributed without prior agreement
                                   from Laurent Francescetti.
The Tools of Cash
Management

     Balances                                                    Queries
     (Internal)




      Advices                                                        Payments
     (Internal)                                                      in and out


                           Consulting for Banking Automation                                  5
      Proprietary and Confidential not to be re-used or distributed without prior agreement
                                   from Laurent Francescetti.
Difficulties


• The Back Office (accounting) application is not
  aware of the actual positions with our
  correspondents — it does not know what is
  outstanding.
   – were our instructions really received and executed?
   – When will they be executed?
   – Inbound instructions and payments?
• What is important for Cash Management is what
  the correspondent says our balance is, not what
  our accounting say it is.

                              Consulting for Banking Automation                                  6
         Proprietary and Confidential not to be re-used or distributed without prior agreement
                                      from Laurent Francescetti.
Reconciliation Will Not
Solve the Problem

• Reconciliation comes after: focused on
  exactness and it is our image
   – In case of discrepancy => investigation and claims.
• Cash Management is now: focused on timeliness
  and completeness. This is what our
  counterparty ’s image is.
   – In case of discrepancy => admit the information from the
     counterparty.



                              Consulting for Banking Automation                                  7
         Proprietary and Confidential not to be re-used or distributed without prior agreement
                                      from Laurent Francescetti.
  A Simple Liquidity Model




Credit Accounts                       Debit Accounts                                       Interbank
    +1.5 %                              - 9.0 %                                              +4%
                                  Consulting for Banking Automation                                    8
             Proprietary and Confidential not to be re-used or distributed without prior agreement
                                          from Laurent Francescetti.
  Absolute (Hypothetic)




Credit Accounts                       Debit Accounts                                       Interbank
    +1.5 %                              - 9.0 %                                              +4%
                                  Consulting for Banking Automation                                    9
             Proprietary and Confidential not to be re-used or distributed without prior agreement
                                          from Laurent Francescetti.
  But Can We Improve?




Credit Accounts                       Debit Accounts                                       Interbank
    +1.5 %                              - 9.0 %                                              +4%
                                  Consulting for Banking Automation                                    10
             Proprietary and Confidential not to be re-used or distributed without prior agreement
                                          from Laurent Francescetti.
A Situation


  ak t aa
 Mr e Dt
 nee t ae
 It rsrt s                                Dbe it                                          90 %
                                                                                          -. 0
                                          Cde
                                            r it                                           .0
                                                                                          15 %
                                          neb n
                                          I t r ak                                         .0
                                                                                          40 %
  as o t r s a .
 Dy f rinee t c lc                                                                           6
                                                                                            30

  a k aa
 Bn Dt
  a iq id y
 DilyL u it                                                                      0 '0 0 0
                                                                                5 0 0 '0 0




                            Consulting for Banking Automation                                    11
       Proprietary and Confidential not to be re-used or distributed without prior agreement
                                    from Laurent Francescetti.
The Three Cases


l ci
l t
 o o
A an                %l n%s r i v t dT l
                     oo
                     n g o ht ns
                         no  % e o
                               e     a
                                     t
                    cu
                     cn cu
                       s c n nt ra
                           s ien
                    aot aot on bk
 . r t
  Cr
1 une                 75
                       % 1 0%    15%1 %0
                                       0
 . t z
  Oim
2 p ie d              65
                       %   5%    30%1 %0
                                       0
 . su
  Aoe
3 bl t                 %
                       0   0%    00
                                1 %1 % 0
                                       0
pf t l d
  r l u
   ey
(e c f i )




                           Consulting for Banking Automation                                  12
      Proprietary and Confidential not to be re-used or distributed without prior agreement
                                   from Laurent Francescetti.
What We Get


R /o R o of R o T
e C
tns
 u t
  r    tn C
       ur
       e ns t   tn
                 u
                 r
             o e n o Ft
                      a r
                       l om
      og S
      ln   hr
            t
            o Ie k
                na
                tb
                 rn      urn
                          r
                         Cte
u
rn
 r
 e
Ct     1 5- '0
        5
        '2 1 0
        6   25    83 1
                    3 '5
                       4
                   '3 1 8   0
Oe
pz
 ti d
 i
 m      3
        '4 6
        5
       12 -5 ' 0 1 73
             2    6'6 2 81 0
                   6   9
                       '5 25
                           '0
bt
se
 o
Aul       0    0 5 65
                  55   '5 4
                       5   '9
                           0
                   '5 5 64 7




                          Consulting for Banking Automation                                  13
     Proprietary and Confidential not to be re-used or distributed without prior agreement
                                  from Laurent Francescetti.
First Conclusion



Yes, it is definitely worthwhile to move
 around funds in order to improve the
        management of liquidity.




                           Consulting for Banking Automation                                  14
      Proprietary and Confidential not to be re-used or distributed without prior agreement
                                   from Laurent Francescetti.
Why is This Difficult ?


1. Inertia : funds cannot be moved arount at infinite
   speed. It takes time to place orders and to
   execute them.
2. Friction : moving funds around has a cost. Under
   a certain amount, it is not worth it.
3. Uncertainty : how do you know exactly what you
   have on each account or what you will need?
4. Minima: a « cushion » must be left, to cover
   against risk.
                             Consulting for Banking Automation                                  15
        Proprietary and Confidential not to be re-used or distributed without prior agreement
                                     from Laurent Francescetti.
Improving on Inertia and
Friction

Fast Treasury Flow:
• Automate generation of payments
  and account-to-account
  movements.
• Improving internal STP
• Selecting correspondents with good
  service and good STP
• Cutting costs of payments down

                            Consulting for Banking Automation                                  16
       Proprietary and Confidential not to be re-used or distributed without prior agreement
                                    from Laurent Francescetti.
Improving on Uncertainty


Know what you have on cash accounts:

   – Currently this information may or
     may not be available on-line -- too
     hard anyway to follow them up.
   – MT950/940 balances are available
     before beginning of day
   – The solution is to automatically
     follow-up the flow of financial
     messages.


                              Consulting for Banking Automation                                  17
         Proprietary and Confidential not to be re-used or distributed without prior agreement
                                      from Laurent Francescetti.
A Good Method



                              Correspondent




                   Payment Messages
 Synchro


                         Bank
                           Consulting for Banking Automation
           Proprietary and Confidential not to be re-used or distributed without prior agreement
                                                                                                   18
                                        from Laurent Francescetti.
What a Liquidity
Management Tool Does

• Provides an information
  centre on accounts (estimated
  balances)
• Allows to easily move funds
  around in order to avoid debit
  positions and invest on
  interbank market.
• Allows to easily place funds
  on the interbank market.

                             Consulting for Banking Automation                                  19
        Proprietary and Confidential not to be re-used or distributed without prior agreement
                                     from Laurent Francescetti.
Conclusion



 Yes, it is financially prudent to efficiently
          manage intra-day liquidity.



     The solution is to use a Liquidity
            Management Tool.

                            Consulting for Banking Automation                                  20
       Proprietary and Confidential not to be re-used or distributed without prior agreement
                                    from Laurent Francescetti.
Thank You for Your Attention.

                  Laurent Franceschetti
                         SettleNext
                   13, rue Fort-Barreau
                     CH-1201 Geneva
                   Tel +41 22 733 6454
               E-mail: info@settlenext.com

                      Consulting for Banking Automation                                  21
 Proprietary and Confidential not to be re-used or distributed without prior agreement
                              from Laurent Francescetti.

				
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