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Straight-through processing promises to speed up the entire foreign-exchange trade cycle. But will treasurers buy in?
Janet Kersnar, CFO Europe Magazine
December 1, 2001
What will it take for online currency marketplaces to win the hearts of corporate foreign-exchange managers? The answer lies in three letters: STP. "It's the latest buzzword," says Robert Iati, research director of TowerGroup, a financial-services research and advisory firm. "Everybody's marketing material has to have some mention of STP."
Straight through processing, or STP, is the complete streamlining and automation of an entire trade cycle. In other words, as soon as a trade request is made, there's no manual intervention — gone is the to and fro of phone calls and faxes to authorize, confirm and settle trades. No manual intervention also, of course, leaves no room for human error.
Sounds too good to be true? In many ways, it is. No provider has bona fide STP yet, say E-marketplace experts. From Currenex's FXtrades and State Street's FX Connect to Atriax, FXAll and SunGard STN Treasury, "all the portals are offering some elements of STP, but not the entire thing," explains Iati.
It's a big reason why few forex managers have felt compelled to abandon their phones and faxes to start trading online. TowerGroup says only around 10 percent of all dealer-to-customer currency trades are done through electronic systems today. To boost business, the name of the game for the portals is even more automation and integration.
Straight-Through, But Not Straightfoward
Granted, it won't be easy. STP is a huge initiative that involves every part of the forex business. At the very least, straight- through-processing requires the building of interfaces for corporate treasury and management systems, as well as pricing engines for banks. What's more, different forex platforms, banks, and software providers are currently using different standards and interfaces.
But treasurers and their forex teams shouldn't despair. "Each little step towards STP will bring you cost benefits," says Damon Kovelsky, an analyst with Meridien Research, another financial-services advisory and research firm. "It might not happen overnight, but it will happen."
So what sort of automation can treasury teams expect to find on E-forex portals? "The portals have focused on streamlining the middle and back offices," comments Kovelsky. "There's been a lot of nice work in that area."
And there's more to come. Arnold Salverda, group treasurer of Sara Lee DE, the German subsidiary of the $5.4 billion (e6 billion) consumer goods company, and his Netherlands-based team are currently part of a pilot project run by Currenex. The aim of the project is to improve how internal forex trade requests are collected and managed.
A newcomer to online forex trading, Sara Lee DE began using FXtrades in early 2001. "Getting pricing from multiple banks simultaneously is a concept we like," says Salverda. With two other regional treasury centers in Curaçao and Singapore and some 10,000 internal and external trades worth around E6 billion executed in fiscal 2001, it's easy to see why. As for STP, Salverda explains that like other E-forex providers, Currenex has automated several important parts of forex trade, such as confirmations.
The idea now is to push automation even further through the front, middle, and back offices by building an interface with Sara Lee DE's treasury management system. One of the main goals is eventually to automate the settlement of trades. Doing so, says Bert Kors, Sara Lee DE's forex manager, will speed up internal trading at the subsidiary "by letting us cut down the number of steps we have to go through to balance off our forex". For example, Kors and his colleagues won't need to fill out trade tickets manually any more, as all the information will be generated and stored in both FXtrades and its treasury management system.
Another online forex company that has been tinkering with the automation of its service is Atriax. In November, General Electric Co. became the first customer to use a version of its dealing engine that's fully integrated with FXpress, GE's forex risk-management system.
David Rusate, deputy treasurer for foreign exchange at GE, which handles $80 billion of forex a year, explains that now GE's forex managers don't have to log on to Atriax every time they need to do a trade. Everything is taken care of from within the FXpress workstation.
If, for example, managers at any of GE's subsidiaries want to make a trade request to central treasury in Connecticut, they simply tell FXpress what the currency exposure is. FXpress goes through the new interface to communicate that exposure to Atriax, which then solicits prices for the trade from a list of predefined banks. "We only have to click on the winning price, and the trade is done, in four seconds," enthuses Rusate.
Small steps, to be sure. But they're enough to give E-forex customers reason for hope. "We're happy with the way this is developing," says Sara Lee DE's Salverda. "Simultaneous quoting from multiple banks and STP, what more can you ask for?"
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