Significant change has been seen in global markets since the 2008 financial crisis. In many, the reliance on traditional asset classes such as FX, money markets and fixed income as drivers of profitability continue to deliver, but the search for yield drives an increasing appetite for more complex structured products that can deliver a higher margin for treasury businesses.
Historically low yields in more traditional asset classes have seen radical reductions in baseline profitability for many flow businesses, altering the expectations for baseline growth.
This change has accelerated the search for lower total cost of ownership (TCO) of technology to service these businesses and driven a desire to enhance operational efficiency and reduce operational risk.
Indeed, more and more institutions are looking to consolidate their operations and lower costs while also seeking profitability from their treasury businesses by enhancing their derivatives businesses in order to drive growth.
The right treasury management system (TMS) can enable new value to be added to a business by increased use of derivatives, while managing the associated market risks with high levels of automation to ensure increased margins and profitability.
This understanding persuaded SunGard to bring together its Ambit Treasury and Front Arena for TMS under one business to address the strategic, operational and risk management requirements of a bank treasury business, across the front, middle and back office.
Delivering automation and control
In a low-margin, high-turnover environment, differentiation occurs when an institution can ensure clarity and transparency from deal origination through settlement, to confirmation and other post-trade activities. Disparate tools and a siloed approach to any asset class are no longer acceptable.
The ability to quickly create, sell, and manage derivatives structures that satisfy a customer’s real-world requirements – for either economic returns or for more esoteric hedging requirements – is a key driver for treasury divisions globally.
Delivering a TMS that supports rapid, automated customer-side pricing that is driven by market prices – which also allows for simple spreads or more complex hard and/or soft margins – is essential. Treasurers need a system that enables them to do more business with less risk and less overhead.
Gain transparency into profitability
Understanding exactly where profits are coming from (reliable funding, strong flow or precise exposure management) enhances the profitability of a firm’s treasury business, and having all positions and flows going through one treasury system provides complete and simple
Gaining total control of exposures can greatly enhance the service level that can be offered to clients. In particular, a system that provides support for trader and sales interaction – workflow and views that facilitate an instant view of market prices and spreads to be offered to
customers – will help deliver a uniform and consistent approach to servicing clients and the management of margins.
Ultimately, assuring liquidity, solvency and revenues while managing customer flows defines an evolving and profit-seeking treasury business.
Minimise risk to maximise reward
Precise funding and liquidity management requires clear understanding of projected in-and-out flows from the business today and also in times of stress. Knowing cash positions and asset inventory is at the core of good balance sheet management and that requires a system that
can track all deals from front to back in one solution.
A TMS that enables treasurers to track flows, project cash, run what-if scenarios in an intuitive and automated way, and, when needed, allows them to quickly assess exposures to counterparties or markets in times of extreme stress can provide competitive advantages and a positive return on investment.
As well as supporting the business, a system that can reduce the regulatory burden by enabling reporting in all jurisdictions is crucial. Being able to support balance sheet risk reduction in back-to-back trading, while maintaining profitability, can help the treasury department gain maximum benefits.
Profit enhancing treasury management system
SunGard’s own Front Arena system was developed with the aim of addressing these requirements via a packaged solution for treasury management, combining intuitive tools to help users create, price, manage and process simple to exotic structures and allowing customers to create those desired products while maintaining strong levels of risk and operational control.
The solution suite helps the treasurer assure liquidity by providing comprehensive up-to-date data on cash, funding and exposures; assure solvency by providing a centralised source of information for robust reporting, planning and decision-making; protect revenue by providing an accurate view of asset/liability positions, the hedging overlay and performance attributions; and manage the impact of customer flow on liquidity by providing greater visibility and control beyond treasury.
Profit seeking treasury management lifecycle
Unbelievably, Kodak has created its own ‘Kodak moment’ worthy of going in the blockchain industry’s family album by announcing the launch of 'KodakCoin'. Even though the Kodak press-release is suspiciously light on details, this is perhaps not as bonkers a move as it first appears. Distributed ledger technology was designed to track assets, and valuable images and digital rights management seems a natural fit.
We have been witness to a series of significant security events recently around payment execution, from Leoni in Germany through to ABB in South Korea and SWIFT in Bangladesh to name a few of the major headlines.
When Mark Cuban declared that "Data is the new gold" he highlighted why information is possibly the most valuable asset a business has. APIs are the unsung heroes that make it possible to extract that value.
How treasury stands to benefit from blockchain: Ripple’s goal to revolutionise cross-border transactions
Imagine a world where cross-border transactions can occur in real-time, at a few cents per transaction, to and from any bank, in any ... read more