Source: KPMG Corporate Treasury News, Edition 43, May 2015 - Guest author: Dr. Martin Nussbaumer, Key Account Manager at Reval
In recent months, treasurers have been racking their brains to find efficient ways to comply with the new EMIR requirements. At the same time, system providers, banks and trade repositories too have been racing to get their platforms and processes up to speed. The fruits of all this frantic activity are impressive indeed. Taking a currency derivative by way of example, let us examine what straight-through processing now has to look like and what systems are involved.
The lifecycle of a currency derivative begins when it is traded. The transaction is completed on an electronic trading platform. All the additional information needed for EMIR reporting, such as comparative offers and a unique transaction identifier (UTI), is forwarded automatically to the treasury system. The electronic service provided by a confirmation matching platform then checks the transaction against the bank document. The treasurer can track the status of the derivative in real time in the treasury system. When the status switches to "confirmed", this is reported – again automatically – to the trade repository. EMIR reports are forwarded continually or as end-of-day batches, depending on the defined system settings and/or what type of system is supported.
It is in communication with the trade repository that the value added by a treasury system becomes particularly apparent. Modern treasury platforms recognize whether information of relevance to EMIR has been changed and automatically forward the required change reports to the trade repository. Maximum process quality is ensured by working directly on the basis of the original data.
On the same basis, payment flows arising from the derivative are handled automatically via the treasury platform. Once a derivative has been cleared, a settlement process is triggered that can, where necessary, access external payment transaction channels directly.
Alongside the treasury function, the accounting function too benefits from the automated handling of currency derivatives, as modern treasury systems enable transactions to be entered automatically in bookkeeping systems. Such direct entries are especially useful in situations where multiple ERP systems are used in one and the same corporate group, or where multiple accounting standards are used for reporting purposes. Where consolidated groups work with internal hedging transactions, the treasury system automatically makes entries from the perspective of both counterparties. Deviations between the two positions are therefore no longer possible.
Foreign exchange risk management is an iterative process. To close the loop, the question must be asked how the trade order actually originates. In this context, treasury systems serve as internal trading platforms to aggregate foreign exchange positions at group level. Once treasurers have identified their foreign exchange exposure, they can conclude hedging transactions as described above. The trade order too can be issued automatically to the trading platform from the treasury system.
To summarize: It is fair to say that the requirements of EMIR have raised the bar significantly in terms of process quality and speed. As the above example shows, treasury systems today have all kinds of ways to automate key processes in cash, liquidity and foreign exchange management and to facilitate straight-through processing with third-party systems – from electronic trading platforms to the trade repository. Firms that make good use of these technologies are no longer weighed down by the bureaucratic burden of EMIR reporting. At the same time, they can significantly improve the quality of their treasury processes.
Contact: Stephan Plein, Senior Manager, email@example.com
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