CorporateTreasurer

Benchmark your way to independence

By Thomson Reuters | Nov 1, 2016

The use of independent data to improve deal pricing can not only save your company money, but also will transform your department from an enabler to a business partner.

When you operate in at least 15 different countries across Asia-Pacific and the world you need to have a tight grip on your market-related exposures, especially when you intend to grow your business further.

Expanding trade and emerging market business has made it increasingly important for DFS Group, the Hong Kong-headquartered duty-free retailer, to get a handle on its currency exposures, funding methods and dependency on receiving pricing information from single, disparate sources.

It can be very difficult, especially in emerging markets, to get full visibility over all your treasury transactions or have the time and resources to build enough strong banking relations to ensure price competition. Add into the mix the fact you are working with many currencies that are restricted, your options on who you trade with become limited.

For companies such as DFS, it can be challenging to build the necessary critical mass to be able to source enough banking partners across the globe and to benchmark their prices in a method that delivers the control  required to ensure you transact using the best price available to you.

In light of these issues, the award winning DFS opted to move onto Thomson Reuters’ Eikon and FXall platforms beginning in 2011 to both access news, data, and analytics and also currency trading, settlement and execution.

DFS manages its FX, funding and end-of-day revaluation through Eikon, which offers corporate treasurers access to multiple execution venues including multibank request-for-stream. FXall supports trading in FX spot, forwards, swaps, non-deliverable forwards (NDFs), NDF swaps and options, money markets, and precious metals.

Execution with confidence
Using these platforms treasurers can execute and invite the onshore banks onboarded as counterparties to send their price on the platform and execute based on the best price.

Kenneth Ng, corporate treasurer for DFS, explained that in the past he worked with one bank to trade FX. “We starting using Eikon to establish an independent source of forwards data to verify the margin [we were paying] was in line with the market… From there we moved to the FXall platform so we don’t have to rely on a proprietary system.”

With platforms such as FXall after a treasury department executes an order, it becomes an executed transaction. Price and the counterparty are added to deal information and it flows back to a TMS or ERP in a tailored report for the local controller or CFO to approve. For many treasurers, this system gives treasury full access to the FX flows and a better idea at the group level of how to capture volatility and also ensure compliance.

The benchmarking doesn’t end there. DFS was also able to get superior funding rates for syndicated loans. Using loan data provided by Eikon, and sourced via the Reuters news network, Ng was able to compare rates and establish a pricing benchmark that help him negotiate with his banks in a position of authority. Savings were considered to be “significant”, Ng said.

To hear Ng’s view on the subject of benchmarking, please click HERE to connect to a recent interview conducted by The Corporate Treasurer and Thomson Reuters.

While data on a specific transaction has its obvious cost and operations benefits, long-term value can also be found in the aggregation of transactional history. Raj Melvani, head of corporates, market development at Thomson Reuters, said there is a drive for treasurers to move from an “enabler to a business partner” and, in seeking this, benchmarking has become a key qualitative tool.

“Benchmarking allows you to go to your seniors and prove you are adding value. You can show you are completing trades that save money.”

He continued: “As markets get more complex the ability to connect and aggregate that data and gain more insight becomes more important. You can use it to have a forward view of your counterparty credit, for example.

A point also raised by Melvani is that treasurers who can take bank agnostic approach to buying services can also benefit from the operational perks associated with it. “When operating in new markets, if the infrastructure is in place and it is bank agnostic, it is easier to plug in a new bank.”

By moving away from the traditional phone dealing model, FXall has also provided DFS access to liquidity and pricing for more than 500 currency pairs though a platform that enables direct trades to market makers and provides easy access to their proprietary products.

Added benefits
Benchmarking benefits aside, from a compliance standpoint the platform had provided DFS greater transparency in its audit trials and comparison of the quotes among different counterparty banks.

DFS had also previously been using email and fax to confirm the FX transactions that are prone to error. Through the new platform, the retailer can connect directly with counterparty banks via Swift messaging and confirm the trade details in real time.

“DFS has found in Thomson Reuters a trusted partner that provides us with capabilities that give our business the ability to achieve best pricing, fast execution and efficiencies across key areas of our treasury management,” said Kenneth Ng, corporate treasurer for DFS said in an earlier interview with The Corporate Treasurer.

 

 

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