What will be the Treasury Trend of 2023?

30-11-2022 | treasuryXL | LinkedIn |

As 2023 is approaching, we explored what Treasurers are particularly looking forward to in treasury for next year. What will be the Treasury Trend of 2023? Are treasurers curious to know what is going to happen in the area of Market and FX Risk Management, or just what the developments are going to be in e-commerce related to Treasury? Or will the understanding of APIs in Treasury be the story of 2023, or the role of Treasury within companies? We sought it out!

We thank Huub Wevers and Kim Vercoulen for sharing their views with us.

What will be the Treasury Trend of 2023?

As 2023 is approaching, we explored what treasurers are particularly looking forward to in treasury for next year. What will become the trends in treasury management next year?Are treasurers curious to know what is going to happen in the area of Market and FX Risk Management, or just what the developments are going to be in Ecommerce related to Treasury? Or will the understanding of APIs in Treasury be the story of 2023, or the role of Treasury within companies? We sought it out! This topic was also the subject of discussion during the last webinar together with Nomentia, you can find the recording here.

Question: What are you particularly interested in that will develop in 2023 in treasury?

treasury trends 2023

First observation

We see that Market and FX Risk Management stands out a little, and that there is less focus on trends in e-commerce and Treasury. What do those within treasuryXL say about this, and what are they looking forward to for next year?

View of treasuryXL experts

Huub Wevers (Nomentia)

Huub is especially interested in the developments in APIs for Treasury for in 2023.

“My personal interest is in the focus on APIs, which is good, as APIs offer new functionalities and convenience for treasurers”

With the current political and economic turmoil, it makes sense that market risk is back on the agenda. Interest rates are rising and emerging markets are becoming riskier. My personal interest is in the focus on APIs, which is good, as APIs offer new functionalities and convenience for treasurers. However, it is a jungle because everyone promises APIs, but few deliver on them, and the few that do make them have no standards.

We also see APIs that are ‘disguised’ file connections. This makes sense, because an API means linking two applications and this can be done through authentication, security and then exchange of a file. We see this a lot with Payment Service Providers. Getting reporting files for matching purposes, for example.

The webinar the other day was interesting because Niki and I represent two different areas of treasury that are important to Patrick, a very experienced treasurer, namely market risk and technology. Together with Pieter as moderator, it was fun to hear the different perspectives and experiences!

Kim Vercoulen (Treasurer Search)

Kim is especially interested in the developments of Market and FX Risk Management for in 2023.

” Important question for the treasurer will remain what to do about this.”

I chose for Market and FX Risk Management. I think especially with inflation and higher interest rates, this is going to have an impact on the treasurer’s work within the treasury department.

This is obviously all going to play through on companies’ costs, and pressure on selling prices will also increase. Important question for the treasurer will remain what to do about this.

How this will affect the treasury market compared to the current year remains to be seen. That is what we are going to witness at Treasurer Search.

Recording Panel Discussion | Treasury Trends for 2023

28-11-2022 | treasuryXL | Nomentia | LinkedIn |

Recently, we had a panel discussion about a few major treasury trends for 2023 together with Nomentia and experts Pieter de Kiewit, Patrick Kunz, Niki van Zanten, and Huub Wevers. If you didn’t get the chance to attend the webinar, you can find the recording here.

During this interactive live discussion we covered some of the following topics:

  • Market and FX Risk management in current times of uncertainty.
  • Top treasury technologies to consider for 2023. Will APIs deliver their promises?
  • Building the bridge between Ecommerce and treasury.
  • The rapidly changing role of treasury to facilitate business success
  • Treasury technology visions beyond 2023.
Watch the recording

 

 

[WEBINAR] FRTB – Are Banks Ready To Be Compliant?

23-11-2022 | treasuryXL | Refinitiv | LinkedIn |

Join experts across the industry for this complimentary webinar to explore how to prepare for – and comply – with the Fundamental Review of the Trading Book (FRTB) regulation in 2023.

DETAILS:

  • Webinar: FRTB – are banks ready to be compliant?
  • Date: Tuesday, November 29
  • Time: 09:00 EST / 14:00 GMT / 15:00 CET
  • Speakers:
    • Hany Farag, Senior Director and Head of Risk Methodology and Analytics, CIBC
    • Fausto Marseglia, Head of Product Management, FRTB and Regulatory Propositions, Refinitiv, an LSEG Business
    • [Moderator] Lisa Regan, Head of Sales, EMEA, Enterprise Data, Refinitiv, an LSEG Business\
    • Volker Wellmann, Risk and Resource Manager at BNP Paribas, BNP Pariba



 

 

Register today

 

Why you need to automate swap execution

22-11-2022 | treasuryXL | Kantox | LinkedIn |

Do you struggle with having a perfect match between your currency hedging position and the cash settlement of the underlying commercial exposure? We’ll let you in on a secret: most treasurers and finance teams do. But how can you simplify this time-consuming and resource-intensive task? In this article, we show why you need to automate swap execution and how you can do it.

We reveal why this is an essential issue for treasurers, how it’s typically handled, and why automated swap execution can help finance teams play a more strategic role in the business. 

Setting the scene

Treasurers know that it is practically impossible to have a perfect match between the firm’s currency hedging position and the cash settlement of the underlying commercial exposure. That’s especially the case if those hedges were taken long before. This is why swapping is so essential.

Let us briefly see an example. If you have a ‘long’ USD forward position with a given value date and you need, say, 10% of that amount in cash right now, a swap agreement allows you to perform that adjustment.

With the ‘near leg’ of the swap, you buy the required amount of USD in the spot market while simultaneously selling —with the ‘far leg’ of the swap— the same amount of USD at the value date of the forward contract. And that’s how you adjust your firm’s hedging position.

Pain points: a resource-intensive activity

Swapping can be extremely time-consuming and resource-intensive, particularly if many transactions, currencies and liquidity providers are involved. We recently saw how a large European food producer was struggling mightily with manual swap execution, a dreadful situation faced by many, if not most, companies.

Among the most common pain points, we can cite the following three:

  • Operational risk. Many tasks are manually executed: retrieving incoming payments, selecting liquidity providers and confirming trades. The entire workflow relies on emails that circulate back and forth with spreadsheets carrying potential data input errors, copy & paste errors, formatting errors, and formula errors.
  • Lack of traceability. Lack of proper traceability hinders the process of assessing hedging performance, as swap legs are manually traced back to the corresponding forward contracts.
  • Risk of unethical behaviour. Understood as the risk that early mistakes that are not immediately reported may lead to severe losses down the road, it is prevalent throughout.

Traceability and automated swap execution

Traceability is when each element along the journey from FX-denominated entry to position to operation to payment has its own unique reference number. But how can we apply this concept to solve the problem of manual swap execution?

The answer is automated swap execution, a solution that is embedded in Currency Management Automation software. It relies on the perfect end-to-end traceability between the different ‘legs’ of a swap agreement and the original forward contract. Meanwhile, FX gains/losses and swap points are automatically calculated. It’s dead simple!

Swap automation is a powerful tool for the treasury team. At the company level, it opens the way to:

  • According to recent surveys, increasing the efficiency of treasury operations is the No. 1 expectation in tech for CFOs.
  • Using more currencies in the business to take advantage of the profit-margin enhancing possibilities of ‘embracing currencies’.
  • Taking a concrete step toward the ‘digital treasury’ is a concern voiced by many CFOs and treasurers.

At a personal level, in terms of the daily workload of members of the treasury team, automated swap execution means:

  • More time to concentrate on high-value-adding tasks such as fine-tuning and improving cash flow forecasts.
  • Reduced stress levels.
  • Increased productivity at work.

And that’s no small achievement! 

Interview | 9 questions for Kurt Smith, Seasoned Treasury Expert

21-11-2022 | treasuryXL | Kurt Smith | LinkedIn |

 

Meet our newest expert for the treasuryXL community, Kurt Smith.

Kurt is a Director of Marengo Capital, a corporate advisory company specialising in treasury, financial markets, corporate finance and private equity. Marengo Capital has a track record of, and passion for, creating and managing for long term enterprise value by aligning corporate strategy, finance and risk.

Kurt is also the Vice President and Technical Director of the Australian Corporate Treasury Association, a member of the Australian Payments Network Stakeholder Advisory Council, and a member of FX Markets Asia Advisory Board.  His career includes senior positions across fund management, bank derivative trading, Fintech, private equity and corporate treasury.  He has a Ph.D in Finance and is a graduate of the University of Cambridge.

Kurt is an engaging and compelling public speaker with substantial experience in presenting, being a panellist and master of ceremonies, for intimate and large audiences in Australia, Asia, Europe, and the United States.  He is well known for providing unique insights into new and well-worn issues, balancing contrarian thinking with informed judgment, and communicating highly technical issues to non-technical audiences.

 

We asked Kurt 9 questions, let’s go!

INTERVIEW

 

 

1. How did your treasury journey start?

I started in financial markets, firstly as a portfolio manager with a macro fund, and secondly as an FX option trader and Head of Derivative Trading for a commercial bank.  While I enjoyed the excitement, spontaneity, and commercial pressure of each day, I wanted something more fulfilling.

 

I became a Director in two FinTech companies commercialising option valuation and risk management technologies, one for the interbank exotic option market and the other for retail investors.  Sourcing capital for product development was a constant challenge but also very rewarding.  By this stage I was hooked on corporate treasury.  Treasury allowed me to direct my passion for financial markets to create, operate and scale businesses by funding growth and making them financially sustainable.

 

I then moved to a $10B+ corporate to run their treasury, corporate finance and insurance businesses.  My main responsibility was developing and implementing capital management and financial risk management strategies to ensure that the company target credit rating was achieved, while obtaining funding, allocating capital to investments, and hedging market exposures to reduce earnings volatility.

 

I am now a Director of Marengo Capital which specialises in creating and managing for value in corporate treasury and corporate finance.  I am still involved in FinTech as the Group CFO of a cash flow securitization company; and I am also the Vice President and Technical Director of the Australian Corporate Treasury Association, which is engaging with and improving the treasury community in Australia.

 

2. What do you like about working in Treasury?

 

I like that the success of the company is in your hands.  The company can formulate exciting corporate strategies and business plans, but those strategies and plans will not be delivered unless capital is sourced, structured and allocated properly, and financial risks are hedged to provide corporate resilience to business cycle downturns and adverse economic conditions.

When you think about it, it is a massive responsibility.  However, I prefer to think of it as a fantastic opportunity to make an impactful contribution.

 

3. What is your Treasury Expertise and what expertise gives you a boost of energy?

 

My specialist expertise is in creating and managing for long term enterprise value.  Increasing value is critical to increasing the capital funding capacity of the company and delivering into the main goals of Executives and the Board.  Most treasurers consider treasury a cost centre and do not have ambition to add value.  To me, that makes treasury a tax on the business, an overhead to be recovered by everyone else.  I believe that there are a large number of ways that treasury can add substantial value, by increasing cash flow not just forecasting it, managing the capital structure to reduce the cost of capital, and evaluating the allocation of capital to investments to ensure value accretive and efficient returns.

 

While I get a kick out of applying commercial acumen to improve businesses, I really get a kick out of convincing others to do the same, from decision-makers to operational teams.  I get very enthusiastic – but I truly believe that value is the key to financial sustainability, which is necessary for companies to do more of what they want to do.

 

4. What has been your best experience in your treasury career until today?

 

I built a very high-functioning treasury and got team members to work on several projects simultaneously in small multi-disciplinary teams.  Team leadership was based on expertise not the hierarchy, and it not only provided all team members with rapidly growing CVs to support their careers, it also provided opportunities for, and the most satisfying discovery of, junior employees with real talent fast tracking into leadership succession planning.  This way of working was new to all of us, and we created a lot of value and had a lot of fun doing it!

 

5. What has been your biggest challenge in treasury?

 

I worked for a capital-intensive company that had rapidly growing capital expenditure to be funded predominantly by debt, during an expected aggressive interest rate tightening cycle.  The rates market had already factored five sequential monetary policy tightenings into the yield curve, such that fixed rates for term debt were very high.  Our analysis showed that in most foreseeable scenarios floating rates would outperform fixed rates, even during sharp tightening cycles.  We went with the maximum allocation to floating rates, and over the next five years interest rates decreased markedly, and we used those decreases to gradually re-weight floating rate exposure back to their neutral weight.

This was a real risk management lesson for me, that is applicable now.  One has to take emotion out decisions, especially fear, do the analysis and trust your instincts.  Worked for us!

 

6. What’s the most important lesson that you’ve learned as a treasurer?

 

Communication is crucial, especially verbal communication.

Executives, Boards and operational teams do not understand treasury and corporate finance.  Treasurers need to be able to communicate complex technical information in a persuasive and compelling way to non-technical audiences.  For example, I prepared a 35-page capital management strategy working paper that I turned into a six-page Board paper, and my presentation to the Board was a single diagram on one slide.  If they were not convinced in the first few minutes, all that work would have been wasted.  Communication is key, and I believe it is a defining characteristic between the best and the rest.

 

7. How have you seen the role of Corporate Treasury evolve over the years?

 

Corporate treasury was formerly a satellite of the business that was involved at the end of the value-chain, to be engaged only when funding of spend and hedging of exposures was required.  As a result, treasury did not influence decisions, it just implemented them.

Good corporate treasuries today are deeply integrated with, and embedded into the DNA of, their businesses; and, as a result, are involved at the beginning of the value-chain where they can influence outcomes.  This is a much more interesting space to play in.

 

8. What developments do you expect in corporate treasury in the near and further future?

 

Everyone is focusing on using technology, digitalisation and data rich environments to reduce operational risk, release resources and gain insights.  This is understandable given the change in the technology landscape and eco-system.

However, I believe that we will have to focus increasingly on our human resources as we re-examine whether the treasury operating model, governance architecture, people, processes and systems are fit-for-purpose not only now, but for the future.  Are our selection processes biased towards technocrats with limited ability to engage and communicate?  Do we hire and / or cultivate businesspeople with commercial acumen?  Do we encourage out-of-the-box innovation or do we effectively enforce the status quo through a relentless drive for efficiency?  I see treasury as a business within a business, and that it should be run as such.

 

9. Is there anything that you would like to share with our treasury followers that they must know from you?

 

As a community of treasury professionals we all have a responsibility to improve the standard of the profession, and to contribute to the recognition of the profession as a profession!  In this regard, treasuryXL is doing a fantastic job of bringing us all together and giving us opportunities to share, learn, explore and discuss treasury.  Let’s make sure that we contribute more than we take out, so that we add value overall.

 

Want to connect with Kurt? Click here

 

Thanks for reading!

 

 

Kendra Keydeniers

Director Community & Partners, treasuryXL

Currency Impact Report October 2022

15-11-2022 | treasuryXL | Kyriba | LinkedIn |

According to a recent Kyriba report, the earnings of North American firms will suffer a shocking $34 billion fall in Q2 2022 as a result of headwinds. When compared to previous quarters, headwinds rose by 3583% since Q3 2021 and by 134% from the prior quarter.

Source

Currency Impact Report

The average earnings per share (EPS) impact from currency volatility reported by North American companies increased from $0.03 to $0.10.

The USD is at a 20-year high, and when combined with volatility and interest rate changes, many corporations have seen their currency risk double or triple, as well as their hedging expenses double.

Kyriba’s Currency Impact Report (CIR)

Kyriba’s Currency Impact Report (CIR), a comprehensive quarterly report which details the impacts of foreign exchange (FX) exposures among 1,200 multinational companies based in North America and Europe with at least 15 percent of their revenue coming from overseas, sustained $49.09 billion in total impacts to earnings from currency volatility.

The combined pool of corporations reported $11.82 billion in tailwinds and $37.27 billion in headwinds in the second quarter of 2022.

Highlights:

  • The average earnings per share (EPS) impact from currency volatility reported by North American companies in Q2 2022 increased to $0.10.
  • North American companies reported $34.25 billion in headwinds in Q2 2022, a 134% increase compared to the previous quarter, and 3,583% increase since Q3 2021.
  • European companies reported a 68% percent increase in negative currency impacts, with companies reporting $3.02 billion in FX-related headwinds.
Download the Report

Only one week left! Live Panel Discussion: Treasury Trends for 2023

10-11-2022 | treasuryXL | Nomentia | LinkedIn |

A friendly reminder that next week at 11 AM CET (November 17th), we’ll be collaborating with Nomentia.

Participate in our live panel discussion regarding 2023’s predicted treasury trends. We invited industry experts to join us and have an open debate about the issues that treasurers would need to think about in 2023. Additionally, there is the option to ask questions.

Date & Time: November 17, 2022, at 11 AM CET | Duration 45 minutes

Some of the topics we’ll cover:

  • Market and FX Risk management in current times of uncertainty.
  • Top treasury technologies to consider for 2023.
  • Will APIs deliver their promises?
  • Building the bridge between Ecommerce and treasury.
  • The rapidly changing role of treasury to facilitate business success
  • Treasury technology visions beyond 2023.p

 

SIGN UP TODAY

November 17 | 11 am CET | 45 minutes

Panel discussion members:

Pieter de Kiewit, Owner of Treasurer Search (Moderator)
Patrick Kunz, Independent Treasury Expert (Panel member)
Niki van Zanten, Independent Treasury Expert (Panel member)
Huub Wevers, Head of Sales at Nomentia (Panel member)

 

 

 

 

 

What is meant when we read or hear about Volatility?

09-11-2022 | Harry Mills | treasuryXL | LinkedIn

We all have an intuitive feel for what volatility is – we know when a market is exhibiting high or low volatility because we see differences in price changes. But it pays to be more precise with our language and to understand what is meant when we read or hear about volatility.

By Harry Mills

Source

Defining Volatility

Let’s start with a more instinctual and accessible definition:

Volatility is the rate at which prices change from one day to the next. If some currencies or other financial assets routinely exhibit greater daily price changes than others, they are considered more volatile.

Harry Mills, Founder & CEO Oku Markets

In his preeminent book, Option Volatility & Pricing, Sheldon Natenberg refers to volatility as “a measure of the speed of the market,” which is a particularly useful reference point when we consider that volatility and directionality are two different things: an underlying’s price can slowly move in one direction over time with very low volatility, or perhaps it swings wildly from day to day, but over a year it’s not changed much.

Now we have a feel for what volatility is, how do we quantify it? This third definition explains what it actually is: the annualised standard deviation of returns, and Natenberg refers to volatility as “just a trader’s term for standard deviation.”

This isn’t an article on standard deviation per se, but if you’re unaware of what this means then it is a measure of the dispersion of data around the average. Take for example if we measure the height of 1,000 people:

  • If all 1,000 people are exactly 5’7″ then standard deviation is zero
  • If standard deviation is two inches, then we know that 68.2% of people will be between 5’5″ and 5’9″ (see the normal distribution chart below)
Normal Distribution chart (Wikipedia)
Normal Distribution chart (Wikipedia)

What about “annualised” and “returns”?

Volatility is always expressed as an annualised number – this uniformity means that everybody knows what is meant when we talk about volatility being X%. In that sense, it’s rather like interest rates, which are also always described as an annualised figure.

This might not be so immediately useful to a trader or a risk manager, though, who might be thinking of daily or weekly price movements and where their risk or opportunities lie. Volatility is proportional to the square root of time, so to convert annualised volatility into daily, we simply divide the volatility by the square root of the number of days in a year – but we need trading days – on average there are 252, equating to 21 trading days a month. The square root of 252 is 15.87, but most traders approximate this to 16…

Hence, if we have a contract trading at 100 with a standard deviation of 20%, then: 20%/16 = 1.25%. We would therefore expect to see a price change of 1.25% or less for every two days out of three (+/- 1 standard deviation is around 68%).

Returns… I won’t go into detail, but if you want to explore this I would recommend chapter 10.6, The Behaviour of Financial Prices, in Lawrence Glitz’s superb Handbook of Financial Engineering which explains how price returns follow a normal distribution and prices follow a lognormal distribution. I’ll also add that calculating the standard deviation of prices doesn’t provide meaningful information because what we are looking for is the change from one period to the next, so we need to look at the daily returns!

Still here? Ok… let’s take it down a notch and look at the types and uses of volatility

Types of Volatility

There are a few types of volatility that can be measured, but by far the most commonly used and referred to are historical and implied volatility:

  • Historical volatility is a backward-looking measure that shows how volatile an asset has been over say, a 20-day period. It’s useful to look at different time periods and to chart the daily movement in the volatility.
  • Implied volatility is the future expected volatility – the term ‘implied’ is helpful because it literally means the volatility that is implied by the premium of an option contract. It’s a critical factor that influences options prices and draws the attention of traders and risk managers.

Uses of Volatility as an Indicator

Volatility is a common measure of risk, and it is a key component of Value at Risk modelling. But be warned of the ubiquitous disclaimer that past performance is no guarantee of future results.

Historical volatility is useful to understand how an asset or a currency has performed in the past – you can line this up with significant macroeconomic events and understand why there may have been a period of change, and you can get a feel for how the underlying “normally” behaves. For example, trading in the Turkish lira will probably present a higher risk than in, say the Swiss franc.

Summary

  • Volatility is the rate at which prices change from one day to the next
  • It demonstrates the “speed of the market” and is different from directionality
  • Technically, volatility is the annualised standard deviation of returns
  • You can approximate daily volatility by dividing the annualised volatility by 16
  • Historical volatility tells us what happened in the past
  • Implied volatility is the expectation of future volatility, and critical to option pricing

Thanks for reading!

 

Harry Mills

Founder at Oku Markets

Managing Business FX Risk

How Treasurers Can (Still) Get Ahead During Uncertain Times

08-11-2022 | treasuryXL | GTreasury | LinkedIn |

Victoria Blake, the Chief Product Officer at GTreasury, recently ran through four trends that corporate treasurers ought to be paying careful attention to—particularly as ongoing economic uncertainty heads into 2023.

Blake argues that “treasurers without a connected treasury are left playing an ever-widening game of catch-up.” She offers specific advice for how treasurers can approach FX rate visibility, cash forecasting, bank fee analysis, and API connectivity. This is a must-read treasurer as they plan their treasury technology strategies for 2023.

Read more at Treasury Management International

MENA Investment Banking Review First Nine Months 2022

02-11-2022 | treasuryXL | Refinitiv | LinkedIn |

Refinitiv Deals Intelligence brings you the MENA Investment Banking performance review, covering First Nine Months 2022.
Access this report for Investment Banking fees, volumes, and league tables across M&A, Equity Capital Markets, and Debt Capital Markets. Examine deal flows, top deals, most active nations, and most active sectors.

 


Report Highlights

INVESTMENT BANKING FEES 
An estimated US$1.1 billion worth of investment banking fees were generated in the Middle East & North Africa during the first nine months of 2022, 5% more than the same period in 2021 and the highest first nine-month total since 2008.  Almost half of this year’s fees were generated during the first three months of the year, with quarterly fees declining in the following two quarters.  Fees totalled US$186.4 million during the third quarter of 2022, the lowest quarterly total in the region in six years.
MERGERS & ACQUISITIONS
The value of announced M&A transactions with any MENA involvement reached US$69.7 billion during the first nine months of 2022, 17% less than the value recorded during the same period in 2021.  Despite the decline in value, the number of deal announcements in the region increased 5% from last year to the highest first nine-month total since our records began in 1980.
EQUITY CAPITAL MARKETS
MENA equity and equity-related issuance totalled US$15.3 billion during the first nine months of 2022, the highest first nine-month total since 2008.  Proceeds raised by companies in the region increased 166% compared to the first nine months of 2021, while the number of issues increased 110%.
DEBT CAPITAL MARKETS
MENA debt issuance totalled US$18.3 billion during the first nine months of 2022, down 80% from the value recorded during the same period in 2021 and the lowest first nine-month total since 2011.  The number of issues declined 68% from last year at this time.

Download the report