TIS – the single source of truth

| 29-03-2018 | treasuryXL | TIS Treasury Intelligence Solutions |

On Tuesday 27th March 2018, treasuryXL attended a seminar in Amsterdam organised by TIS. TIS stands for Treasury Intelligence Solutions and, during this seminar, Christian Werling from TIS  gave a very informative presentation about their services which focus on cloud solutions for managing the administration of bank accounts. These solutions offer real-time reporting on all bank accounts – worldwide – and the ability to use just one system to validate and release all payments. In a world where a treasury department might hold more than 100 bank accounts, dispersed over more than 10 banks spread out across different time zones  and having to maintain the possession and custody of numerous bank tokens and log in protocols, a one stop solution is very enticing.

Why?

In today’s world, companies can find themselves with a physical presence in a multitude of countries and locations. In the current environment, a corporate treasury would need to log on to the website of every unique bank where they hold accounts and extract the bank statements for the previous day. Using separate bank tokens and log in protocols, this process can quite easily take up to 1 hour. Furthermore, all the separate data needs to be collated and then uploaded into 1 system, Various subsets of the information need to be given to different internal departments so that they can perform their daily tasks – reconciliation, data input and verification.

The reality

In the modern age, you could find yourself as a Treasurer, within a large complex organisation, consisting of a head office, subsidiaries, legal entities and shared service centres. The underlying platforms can consist of book keeping systems, ERP, HR and different databases. Additional data flows come from e-banking systems, TMS and stand alone projects. The output from all these systems are then used to connect to the banks. Furthermore, all these layers of connectivity can be subject to fraud or attack from outside sources.

TIS provides a single point of contact via a SaaS (Software as a Service) platform that connects to all these systems, thereby offering a simple and effective control over the data flows in real time.

Advantages

  • Real time information
  • Control from a single point
  • Centralised bank account management
  • Centralised bank account mandates
  • Transparency
  • Cost efficiencies

After this we were informed about how the system works in the real world. Bas Coolen is the global head of treasury at Archroma – a colour and speciality chemicals company based in Switzerland. They have a physical presence in over 35 countries and 3,000 employees. Formed 5 years ago, they wanted a minimal  IT solution to their legacy banking operations. These operations stretch from Asia, via Europe to the Americas and involved many different banks.  They concluded that no single bank could provide the service they required within every country and that they needed a solution. By adopting the platform offered by TIS, they have been able to implement a global system that encompasses all their bank accounts – this provides them with a single source of truth. Importantly, the security aspects can now be maintained from one source – all the relevant authorisation matrices are now contained in one platform, along with the capability to perform all global e-banking operations from one location.

TIS were joined at this seminar by Cashforce, who presented their Smart Cash Forecasting and Treasury system – that will be the topic of our next blog.

treasuryXL would like to thank TIS for allowing us to participate in this seminar. If you have any questions, please feel free to contact us.

 

Rainy day funds and moral hazards

| 28-03-2018 | treasuryXL |

Christine Lagarde – the chief of the IMF – stated recently that the Eurozone countries should set up a “rainy day” fund that could be used to protect the countries in a time of economic turmoil. As the IMF is seen as the lender of last resort to the world, her words carry weight. Economies are subject to a cyclical motion – going from bad to good and then back down again. Her opinion is that closer integration is needed between the Eurozone countries to protect them from the inevitable downturn when it arrives.

Closer Integration

To achieve this target, it would require at least the following steps:

  • Closer banking union – more mergers
  • Unified capital market
  • Universal deposit protection scheme that is pan-european
  • Integration towards a common tax system

Her speech closely echoes that of her fellow countryman – President Macron. However, whilst receiving support from Mrs. Merkel when making his remarks, he also met with objections from other member states. Countries such as the Netherlands and Sweden voiced their objection to what they perceived as “far reaching” policies, whilst ignoring the fundamental problems and issues within the Eurozone. Their concerns are centred around the public perception of the Eurozone – there has been a growing tide of populist sentiment expressed at recent general elections, together with the continued fallout from the financial and sovereign debt crises that has impacted on the economic well being of the citizens.

Implementation of this policy – according to the IMF – would entail an annual contribution of about 0.30-0.35% of GDP per member state into a common fund. This fund would then pay out in the event of an economic downturn. Given the aforementioned level of disenchantment among citizens, it would not be easy to implement this policy within every member state. Furthermore, whilst pay outs would be conditional on member states meeting certain criteria, the Eurozone has shown in the past that their criteria has been ignored and no sanctions were enforced.

This common fund, whilst being ring fenced, could have an impact on the functioning of financial markets. Just knowing that there is a fund that needs to earn a return could led to distortions in money markets. Also, who decides when a member state can draw down from the fund – the EU, the ECB, majority decision of member states?

And then there is the potential problem of moral hazard. A country could pursue policies that are imprudent, safe in the knowledge that there was a communal fund to save them. Given the record of certain member states since even before the inception of the Euro to deceive, this is not a matter to be taken lightly. Even when countries have be found to have cheated they have always received the help that they need, regardless of all the stated criteria that are in place. Countries that are performing well will have to pay proportionally more into the fund than countries whose economies are not doing so well.

10 years since the start of the crisis and almost 20 years since the introduction of the Euro, we are no closer to a collective harmony than before.

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Peer to peer lending – just a fad or a change in the market?

| 27-03-2018 | treasuryXL |

 

Almost 2 years ago we reported that KNAB Bank had started a crowdfunding initiative to allow, mainly companies, to access an alternative area to fund their businesses, whilst at the same time allowing investors to directly participate in these loans and lend directly – via KNAB – to the borrowers. An extra incentive was that KNAB would directly participate in all loans – their role was not only as an intermediary and facilitator. Now is a good time to look back on their progress and refresh ourselves with the concept of peer to peer lending (P2P).

What is it?

It is an online service that matches the needs of the borrowers with that of the lenders. As the service is only related to lending and does not encompass traditional banking roles, the service providers are able to provide these services cheaper and more quickly than a traditional bank loan. The P2P service provider takes a fee – a margin on the interest rate and/or an annual service charge. In recompense, they enable the matching service to take place, administer the loan and ensure that the investors receive their money back – in the form of capital repayments and interest.

What are the features of the system?

  • It is an online facility
  • Intermediation is provided by the site owner
  • Borrowers can post their proposals online
  • Lenders can choose which borrowers and loans meet their criteria
  • Repayment schedule is included
  • Loans can be secured on unsecured
  • Credit ratings are applied to the borrower
  • Loans can be tracked and monitored for compliance

What role does the intermediary play?

  • Process the loan applications
  • Authenticate the validity of the borrower
  • Perform relevant credit checks
  • Process the cash flows
  • Service the loans
  • Ensuring correct compliance and reporting are carried out

What are the advantages?

As the service is an online matching service, it is fast, simple and cost efficient, This leads to lower interest costs for the borrower and allows investors to directly access the loan market and earn a higher return on their money than traditionally obtained at the bank. Also, the administrative processing time can be a lot quicker than by a bank. The system also can appeal to the ethics of a lender – they have the opportunity to directly help a company that is looking to expand or who require finance for major investment. Furthermore, an investor knows exactly who is borrowing their money – depositing money at a bank does not detail how that money is used by the bank. There has been a political and ethical backlash to banks over the last decade in response to the perceived domination they have within the market. As a lender, it is possible to get yields of between 5% and 9% on your investment. This will be lowered by the costs that the intermediary levy – KNAB take a service charge of 0.85% per annum on the outstanding balance.

What are the disadvantages?

As a lender your money is not guaranteed. You bear all the risks and, in the worst case, could lose your investment. Despite all the due diligence that has taken place before the loan request was placed on the platform, it is still necessary to perform your own checks on the potential borrower – your criteria may be different to that used by the platform. You cannot demand early repayment from the borrower – money that you invest must be money that you can miss for the duration of the loan.

 

How is KNAB doing with their P2P?

  • They have arranged funding for 57 loans totalling EUR 9,125,000
  • The average loan is for EUR 160,087, takes 49 hours to complete and charges an interest rate of 7.83% pa
  • There are 4,533 investors with an average exposure for EUR 905 and a yield of 6.98% pa.
  • All loans are based on linear redemption, have a tenor of between 6 months and 10 years.
  • To date there have been no defaults on principal repayments and there are not payments in arrears.
  • Participation can be from EUR 100 per loan – this allows for diversification.

Conclusion

For investors looking for an alternative investment with a longer duration, P2P can appear interesting. The risks are greater than depositing money at the bank, but the potential rewards far exceed the returns offered by banks. Additionally, for investors looking to approach the market more ethically, it does give the possibility of directly participating in someone else’s ambitions – knowing that your participation is having an effect on society. There are considerable risks, but these must be weighed up against the potential reward. Any investor needs to work out how much they can afford to lose on their principal investment against the higher return being offered.

Contact us

 

Credit Default Swap: What is it – good or bad?

| 26-03-2018 | Lionel Pavey |

A decade ago it was one of the financial instruments that was identified as causing the financial crisis. It had been one of the most popular financial products before the crisis with the market turnover growing by more than 50 times over a period of 7 years. It started out as a simple financial instrument to aid bond holders in obtaining protection from the risk of default. So what is a Credit Default Swap (CDS) and where did it all go wrong?

The buyer of a CDS pays regular premiums to the seller of the CDS – expressed in basis points. These payments are normally quarterly in arrears and the total value of the payment is dependent on the nominal value of the contract. This nominal value relates to the par value of the underlying bonds – if you hold bonds with a par value of EUR 5 million and wanted to buy protection for the full amount, then the CDS contract would be for EUR 5 million.

The seller of a CDS would receive these regular payments and would only pay out if the bond issuer defaulted. At the time of a credit event (default), the CDS seller would assume ownership of the bonds and pay the CDS buyer their par value. It can be likened to comprehensive insurance that we buy for our cars – we pay an annual premium and the insurance company covers us for the costs of any damage to the vehicle in the event of an accident.

What is a credit event?

The definitions of a credit event are set out in the contract and defined by referencing terms agreed by the International Swaps and Derivatives Association (ISDA). The major credit events, in European contracts, are bankruptcy, failure to pay on its debt obligations, and restructuring.

A contract will contain standard terms and conditions –

  • effective start date
  • scheduled termination date
  • the agreed price
  • payment dates
  • the reference entity (normally a bond issuer)
  • the reference obligation (usually an unsubordinated bond)
  • substitute reference obligations (if the original was repaid earlier than the termination date of the contract)
  • calculation agent

As previously stated, when the CDS market started it was seen as a product to protect bond holders and, in the event of a default, the CDS buyer could deliver the agreed reference obligation and receive its par value. In 2005, the limitations of this system were first recognised; Delphi – a manufacturer of auto parts – defaulted. The par value of their outstanding bonds was USD 2 billion – the sum of CDS contracts was USD 20 billion. As original bonds had to be tendered to validate the contract, a run ensued on the bonds and, whilst defaulting, the bond price went up!

This led to the next phase – cash settlement. Here, in the event of default, the CDS seller paid to the CDS buyer the difference between the par value and the market price – facilitated by an auction process to determine the fair market value.

However, an unintended consequence was the discovery and creation of different trading strategies that had not be envisaged when the CDS was designed. Before the introduction of CDS contracts, if you were bearish on a company you would need to short-sell their bonds. This is a sensitive process as the short position needs to be covered via bond lending to maintain the settlement position. With CDS it now became possible to purchase protection on a specific entity at a relatively cheap price – the CDS premium. It was therefore possible to replicate a physical short position with a derivative position.

It also led to the creation of “synthetic” instruments – synthetic CDS’s and CDO’s (Collateralized Debt Obligations). The sum of actual tradeable financial instruments were limited by their issue – synthetic products allowed banks to create products to meet the demand from clients to gain exposure to entities. It was a this stage that the market truly grew – it was possible to replicate any exposure that the client desired. When the financial crisis hit, all the “over the counter” derivatives compounded the problems. No one knew what the potential exposure of their counterparties was. These counterparties could have easily sold CDS contracts that could have a potential exposure to the par value of the underlying reference entities of bonds, CDO’s etc.

Is there a future?

CDS are useful financial products – most of the trades now take place on exchanges. However, the genie is not yet back in the bottle. There are now lawsuits – initiated by hedge funds – claiming that defaults are now being prearranged (Hovnanian Enterprises Inc.). The main problem is still who holds the potential risk and for how much. The essence of the product is viable and the original demand is still there. But, as with many financial products, as soon as they become commoditised, market turnover far exceeds the actual underlying market.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

Ripple is making blockchain waves

| 23-03-2018 | Carlo de Meijer |

Almost a year ago I wrote my blog “Blockchain and the Ripple effect: did it Ripple?”. Now twelve months later we may conclude it did. And even more than that. Ripple is making many waves. A lot happened both in broadening their offerings and in enlarging their network. A growing number of banks and payment providers, increasingly join RippleNet, Ripple’s decentralized global network, to “process cross-border payments efficiently in real time with end-to-end tracking and certainty”. By using the growing set of Ripple solutions they are able to expand payments offerings into new markets that are otherwise too difficult or too expensive to reach. The focus of Ripple therefor has especially moved towards emerging markets.

BROADENING RIPPLE OFFERINGS

Ripple was set up in 2012 to create a streamlined, decentralized global payments system named RippleNet, using technology inspired by the blockchain, to record transactions between banks. RippleNet is an enterprise-grade blockchain platform, that nowadays has over 100-member banks and financial institutions. These partners can use all the Ripple offerings.

Solutions

Ripple makes software products based on blockchain technology and sell them to banks, payment providers and others to be used on RippleNet. These are aimed to make cross border payments truly efficient for these players and their customers. Next to their digital asset XRP, the XRP Ledger, and xCurrent, that helps banks settle transactions, Ripple has added a number of new services/offerings to the platform including xRapid and xVia. This in order to attract more clients to enter RippleNet. Ripple is now taking the next step to help build the Internet of Value (IoV), by establishing an Infrastructure Innovation Initiative.

a. XRP: digital asset

From the outset, XRP, Ripple’s digital asset was expected to be an important part of Ripple’s decentralised payment system. Ripple uses its own XRP cryptocurrency as a payment method to make it easier for banks to move money internationally. Banks and payment providers can use Ripple’s digital asset XRP to further reduce their costs and access new markets. One rationale for using XRP is that unlike Bitcoin, the token has one narrowly defined (payments method!) but clearly useful purpose: to help banks move cash faster and more cheaply, especially across borders. The token could be used as a kind bridge currency between fiat currencies. For example South African rands in Johannesburg could become XRP, which could then be turned into baht in Thailand. That could help banks avoid the time consuming and expense of tying up money in different currencies in accounts at other banks.

b. xCurrent: processing payments

RippleNet is powered by xCurrent, for payment processing. xCurrent is the new name of Ripple’s existing enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end tracking (and bidirectional messaging across RippleNet). It provides real-time messaging, clearing and settlement of financial transactions. The xCurrent messaging platform however does not involve XRP. It includes a Rulebook developed in partnership with the RippleNet Advisory Board to standardise all transactions across the network. That ensures operational consistency and legal clarity for every transaction. The Interledger Protocol (ILP) is the backbone of the solution and makes it possible for instant payments to be sent across a variety of different networks.

Read the full article of our expert Carlo de Meijer on LinkedIn

 

Carlo de Meijer

Economist and researcher

 

Unilever’s decision – the Ides of March?

| 22-03-2018 | treasuryXL |

On 15th March 2018, Unilever announced its decision to domicile its headquarters exclusively in the Netherlands. This will lead to Unilever having a single legal base for the first time. Traditionally, Unilever had 2 holding companies – Unilever NV, registered and domiciled in Rotterdam the Netherlands, and Unilever PLC, registered and domiciled in Port Sunlight, England. There were 2 head offices – one in Rotterdam and the other in London. Unilever was formed in 1930 by the merger between Margarine Unie and Lever Brothers and has a dual listing in both the AEX and the FTSE index. The 2 companies operate as a single business. What are the reasons behind this decision and what are the consequences?

Framework

Whilst having a dual listing, 55% of the stock are held via the Dutch NV and 45% by the UK PLC. Liquidity in share trading is 1.5 times higher in the Netherlands than in the UK. After this decision, Unilever will have 3 divisions – food and refreshment based in the Netherlands, home care and personal care which are both based in the UK. Under this split, 49% of operating profit is attributed to operations in the Netherlands, the remaining 51% to the UK. Importantly, 92% of the activities occur worldwide outside of these 2 countries.

Nationality

Unilever has one major issue that must be resolved – it must choose its nationality. This is important in determining on what exchanges its shares are traded. As a major constituent of both the AEX and the FTSE, there are many investors and investment funds who hold shares to track the index. If there is no recognised nationality with the UK, this would imply Unilever leaving the FTSE 100 – compelling tracker funds to sell their stock. By incorporating within the Netherlands, Unilever will have one type of share – common shares with common voting rights. There will be no preference shares with extra voting rights.

Brexit

Was the decision taken because of Brexit? Unilever themselves have stated that this was not the case. It is acceptable to conclude that the free choice of the UK to leave the EU did not promote the option to stay in the UK. However, Relx (former Reed Elsevier and also a dual listed Anglo-Dutch company) recently announced that they had also chosen a single location – but they chose UK over the Netherlands.

Defensive

In 2017 Kraft Heinz (a US conglomerate) made a hostile takeover bid for Unilever. This was beaten, but accelerated the decision process within Unilever. By choosing a single listing and single nationality it would appear to be easier to defend the company. The Dutch model affords more protection to the takeover target, being based on the Rhineland model of stakeholders, rather than the Anglo-Saxon model based on shareholders.

The future

Unilever will gain clarity of oversight – the structure of the company is clearer. As a single legal entity it will be easier to issues new shares etc. It should also place Unilever in a more progressive position with regards to acquisitions. This could be interesting news for Dutch banks – allowing them to more directly participate. However, the City of London is still home to the largest financial market in Europe. It will be interesting to see who wins that battle in the future.

The 15th March is historically known as the Ides of March – a day on the Roman calendar. Traditionally it was the date when debts had to be settled. It was also the date when the emperor, Julius Caesar, was assassinated – a defining day in the history of the Roman Empire, that impacted on its future.

 

Basisbeginselen Beursgang – Treasury for Non-Treasurers

| 21-03-2018 | Pieter de Kiewit |

Cash PoolingMet het huidige nieuws rond beursgangen (IPOs = initial public offering) heb ik gezocht op het steekwoord beursgang op treasuryXL en vond geen resultaten. Wellicht omdat de treasury beroepsgroep communiceert in het Engels. Voor Non-Treasurers ga ik bij deze kort in op de basisbeginselen van een beursgang en waarom hier zoveel aandacht voor bestaat.

Om maar te beginnen met waarom er zoveel aandacht voor bestaat. Dit is omdat het natuurlijk over het algemeen over heel veel geld gaat. En wat is zo’n beursgang eigenlijk? In den beginne is een bedrijf van één of enkele aandeelhouders. Dit zijn de oprichters, de familie of investeerders die een één op één deal hebben gesloten met de oprichters. Aandeelhouders besluiten zelf of en aan wie ze willen verkopen. Totdat de beursgang er is en aandelen vrij worden verhandeld op de beurs. Oprichters kunnen niet meer bepalen wie hun eigenaar is, iets dat Akzo Nobel en Unilever recent duidelijk hebben gevoeld.

Redenen die worden aangevoerd om naar de beurs te gaan zijn, niet uitputtend:

  • Er is kapitaal nodig voor verdere groei;
  • De eigenaren willen hun bezit te gelde maken;
  • Een notering aan de beurs geeft het bedrijf aanzien;
  • Middels een notering is het gemakkelijker in de toekomst andere soorten financiering te verkrijgen;
  • Aandelen- en optieplannen voor werknemers zijn gemakkelijker vorm te geven.

Een beursgang is niet zaligmakend. Veel van bovenstaande doelen kunnen ook via een andere manier worden bereikt: een banklening, verkopen aan een strategische partij en obligaties bij institutionele beleggers. Er komen ook zeer nadrukkelijke nadelen in beeld bij een beursgang: de rapportage eisen zijn veel hoger. Dit levert hogere kosten op. Je moet inzicht geven in je onderneming en haar plannen. Dit kan de concurrent zeker waarderen. Als je verkoopt, verlies je zeggenschap. Wie betaalt, bepaalt.

Voor treasurers is een beursgang vaak het hoogtepunt van zijn/haar loopbaan.
Weet dat als je als aandeelhouder wilt instappen, dat dit niet zonder risico is. In de hausse van beursgangen bij Facebook, AliBaba en anderen is er meer geld verloren dan verdiend. En zoals een investor laatst zei in het FD: “Waarom zou een private equity huis verkopen als de kansen voor de business case heel sterk zijn?”. Onderzoek waar je instapt en wat de motieven zijn van de verkopende partij.

Binnenkort staan er een aantal nieuwe bedrijven genoteerd aan de beurs. Ik ben benieuwd hoe de noteringen zullen verlopen. Later zullen we hier vast dieper op ingaan.

Pieter de Kiewit
[email protected] / +31 6 1111 9783

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

 

How To Optimize Your Cash Management – upcoming event

| 19-03-2018 | treasuryXL | TIS Treasury Intelligence Solutions |

Treasury Intelligence Solutions GmbH (TIS)- a partner of treasuryXL, are organising a very engaging event that is being held in Amsterdam on Tuesday 27th March 2018, for corporate treasury. We have been kindly invited to attend and shall report back to you later, with our thoughts and experiences on what promises to be an interest evening. Read on for more information about this event and sign up if you find this event relevant to you and your company.

TIS will be joined by Cashforce, at the TIS Experts Evening in Amsterdam. The main focus will be on TIS client Archroma and their presentation on the global implementation of TIS.

TIS is the leading cloud platform for the management of company-wide payments and cash flows. TIS enables companies to make more efficient, more secure and more cost-effective payment transactions while also enabling customers to make better decisions when analysing financial and operational performance in real time.

Bas Coolen, Head of Treasury at Archroma, will present challenges in his department and his key objectives for a consolidation of bank account management and an optimization of payments.

Archroma is a global colour and specialty chemicals company headquartered in Reinach near Basel, Switzerland. It operates with 3,000 employees over 35 countries and with 24 production sites.

Cashforce will inform you about the art of automating your cash forecast with minimal effort.

TIS and Cashforce are very much looking forward to stimulating discussions and ideas with their comprehensive agenda and lectures. Reports on trends, achievements and real-world examples from the industry will round up the program for this evening.
During the networking section you will have the opportunity to further exchange with Bas Coolen and the experts from Cashforce and TIS. You can take this opportunity to ask your questions about how to operate an elaborate cash management system, that offers the functionality you require.

The event is being held in the Dylan Hotel, built on the site of a famous theatre – so we can expect a good performance.

Register now for one of the last remaining seats via the following link: Expert evening Amsterdam

treasuryXL wishes everyone – both participants and attendees – a productive evening and will report back later with our findings.

Smart contracts – oxymoron or the future for business?

| 16-03-2018 | treasuryXL |

On Tuesday 13th March 2018, RTL Z – a television channel – broadcast a “Cryptoshow” to explain how the Blockchain works and what it could mean for the future. They attempted to make the technology and information as simple as possible to show what uses the Blockchain could have in the world for consumers and businesses. One of the main areas of interest relates to Smart contracts. What are they? What are the advantages and disadvantages? What changes can they bring?

Definition

Wikipedia defines a Smart contract as “a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible”.

These contracts facilitate the transfer of goods, services, property, money – in fact anything of value – in a manner that is transparent and direct. It removes the role of an intermediary.

How they work

  • You agree to enter into a transaction
    You draw up an agreement electronically
    The agreement is encrypted and placed on a secured shared ledger accessible to the counterparty
    As this is the Blockchain, the data is backed up at various other locations
    Both parties perform as per the agreement
    Costs are reduced by the absence of intermediaries
    As both parties have agreed to the contract they are faster and less expensive to administer
    Being electronic there is less possibility of errors occurring due to manual input

Advantages

  • Both counterparties receive an identical agreement
    You decide who can access and amend documentation
    Rules that have been agreed upon define how changes can be made
    Any agreed change in one document is automatically made to all relevant documents
    Encryption and the methodology of the Blockchain ensures that transactions cannot be altered after being agreed and the block validated

Disadvantages

  • Are they enforceable by law
    No action written in a contract can be against the law of the land
    Contracts still have to be written – electronically. This entails human involvement that could lead to errors
    Considerable knowledge of computer coding is required
    Lawyers still need to be involved in the formation of the contracts
    Costs – employing these specialists will come at a steep price

What further uses can the Blockchain provide

Digital identity – it will be possible to identify an agreed counterparty and all their static data can be stored
Proof of provenance – especially for ethical businesses, it will be possible to issue certificates proving the source of goods
Communication within the supply chain – discrepancies will show up and can be proactively addressed
Payments – removing financial intermediaries implies quicker payments and reduced costs
Ownership – Smart contracts enforced by law make it possible to register the legal owners of goods and property
Loyalty programmes – with all the details present from all transactions, it is possible to initiate programmes to reward clients/customers

The greatest savings will be seen in processing – both in time and costs. Some reports suggest savings of up to 40% can be established, together with a real-time overview of positions. However, the whole system relies on one major factor – trust. Where we previously met people, negotiated, agreed etc., now we will do more of that online. Furthermore, implementation of a Blockchain strategy will require a company to complete revaluate their current way of working, leading to considerable planning and strategic positioning.

The proposed future looks exciting – it is now up to industry to determine the road on which they wish to travel.

Term sheets – glossary of terms

| 15-03-2018 | treasuryXL |

Whenever entering into transactions with banks, both parties need to know and understand what they are trading. A relatively simple transaction like a FX spot has few terms – you buy one currency against selling another currency at an agreed rate and an agreed settlement date. The only other major factor relates to where the settlement has to take place – on what bank account are you receiving and to what bank account do you have to pay the counter currency.

However, when entering into a loan or derivative it is always prudent to draw up a term sheet stating all the relevant criteria to enable the bank to quote a price. Once the trade is effected, then a confirmation is sent which should have the same terms and conditions as the term sheet. Here is a list of terms that are regularly used and their meaning. They mostly apply to physical products as well as to derivatives.

American Option – an option that can be exercised on any working day until the expiration date

Bermudan Option – an option that can be exercised on more than one specified date before the expiration date

European Option – an option that can only be exercised on the expiration date

Binary Option – an option whose payoff is either an agreed amount (monetary or asset) or nothing at all

Call Option – The right, but not the obligation, to purchase a specified underlying asset, at a specified price (Strike price) on a specified date in the future

Put Option – The right, but not the obligation, to sell a specified underlying asset, at a specified price (Strike price) on a specified date in the future

Cap – an option that pays out when a specified interest rate price exceeds a pre-agreed level (Strike price)

Floor – an option that pays out when a specified interest rate price falls below a pre-agreed level (Strike price)

Collar – the simultaneous purchase of a Cap and sale of a Floor on the same specified interest rate for the same nominal amount, protecting the purchaser from rate rises whilst negating the cost of the option by selling the Floor

Strike price – the price (level) at which an option holder can exercise their rights under the agreed option

Premium – the cost of buying an option

Trade date – the date when the specifications of a contract are transacted

Effective date – the start date of a contract

Termination date – the end date of a contract

Payment date – the date on which a payment is made

Fixing date – the date on which a floating rate is set/fixed

Forward start – a contract agreed on a trade date, that becomes effective on a specified future date

Tenor – the length of time that a contract is valid

Reference rate – the specified interest rate (or FX spot)  index upon which future cash flows are based

Fixed rate – an agreed interest rate that cannot vary over the lifetime of the contract

Float rate – an agreed index rate that can be periodically reset over the lifetime of the contract

Derivative – a financial instrument that derives its value from the value of an underlying asset

Break clause – a clause written into the contract, that releases both parties from the contract in the event of a pre-agreed relevant event taking place

If you are interested to know what the effect of these terms can have on a contract, please contact us for more detailed information.