Tag Archive for: trading

Can Trading in Corporate Treasury be Outsourced? About our Invitation-only Round Table

25-03-2020 | treasuryXL | Pieter de Kiewit

Efficiency, lack of expertise, stability and other reasons are all perfectly fine to consider outsourcing in general. Based upon input about outsourcing of trading in an asset management environments we decided to ask prominent corporate treasurers if they think this might work in their company. This is my, very personal, report about the meeting.


Recap Round Table

Being a treasury recruiter I hear interesting stories about the professional lives of clients, candidates and others. Not too long ago I spoke with Dmitry Zamkovoy of Milliman. He told me about their outsourcing services for financial institutions, not only middle and back office functions but also trading operations. Together we wondered if this would work for corporates. See also his article ‘Outsourced trading, is it time to make the switch? Nine factors to consider’

Most of my clients are corporate treasuries with teams with up to dozens of staff members dealing with large banks who employ thousands of specialists. Corporate treasurers have to know a lot about various topics, have important responsibilities and vacation or sickness can be a problem. So my hypothesis is that outsourcing might offer stability and expertise, perhaps efficiency.

In order to find out if my assumptions are right, we decided to organize an invitation-only round table, hosted by Treasurer Search and treasuryXL with the content expertise of Milliman. The 12 participants all have leadership roles in large or very large treasuries, managing front offices. We had group treasurers of Dutch listed companies with up to €10 billion revenue stream and directors of risk working with companies even substantially larger.

In our introduction it became quickly clear we had the right group of people to discuss the hypothesis. Relevant and related topics like regulatory affairs, cost savings, relationship with external parties, cybersecurity and also HR effects were discussed. Also, it did not take long to find out that the hypothesis was met with a lot of scepticism. Various reasons were mentioned.

  • The actual trading task within corporates does not take that much time of treasurers, so what is the win in efficiency?
  • Trading is one little element in the whole risk mitigation strategy of companies. The risk process starts within the operational business and all agreed business-related tasks cannot be outsourced;
  • With increased transparency in the market and a decreased risk appetite in investments of corporates, the complexity of the actual trade is not that high anymore;
  • Some feared that the relation with their brokers and banks would suffer under outsourcing;
  • I sensed that many participants, and their staff, enjoy doing the actual trade and do not look forward to losing that part of their job;
  • Also the statement “if you outsource a process, you can also automate it” did not work in favour of outsourcing.

Conclusion and what about your thoughts?

Dmitry and I raised a question and got our answer. Perhaps outsourcing is possible but not appealing. I am just a treasury recruiter with no stake in the business case but for me, some nagging questions remain:

  • “is the focus only on trading too narrow?”,
  • “what would be the answer if we would ask CFOs or IT experts?”,
  • “there a few examples of outsourced corporate treasury I know about. What works, what doesn’t?”.

Expertise, stability and efficiency are the results of outsourcing of other functions. Does treasury have such a unique position?

Join the discussion

I look forward to your opinion in this, the discussion takes place at the LinkedIn page of treasuryXL.

Thanks for reading!

 

[Developer Webinar] Instrument Pricing Analytics for Bond Pricing and LIBOR alternatives

10-03-2021 | treasuryXL | Refinitiv |

Webinar on March 30 at 10 am BTS

LIBOR is widely embedded in operating models and a transition to alternative rates will affect how many contracts are priced and risk managed.

Join this webinar where Refinitiv will showcase and demonstrate examples in Python. Register by entering your details by clicking the banner above.

Refinitiv will be using Instrument Pricing Analytics API to price:

  • Fixed Rate Bonds
  • Floating rate notes on new Risk-Free Rates

From a Quantitative perspective exploring: 

  • Impact of LIBOR transition on Bond Pricing & generating yield curves

 

The future of trading: The rise of data analytics in trading

11-01-2021 | treasuryXL | Refinitiv |

 

Redefining data: What is your strategy?

With more information available than ever, traders must find the right data, make sense of it, and ultimately take action.

 

 

With more information available than ever, traders must find the right data, make sense of it, and ultimately take action. Unstructured information, the explosion of alternative data, and the need for trusted sources makes an already daunting task even more complex.

 

In our second report with Greenwich Associates on the trading desk of the future we explore the data that will keep markets moving over the next 3-5 years. With an overwhelming 85% of those surveyed planning to increase spending on data management, the value of financial data is clearly increasing.

Alternative data tops the list of most important data types, but is only useful if traders trust the source. When it comes to issues of scale and trust, 41% of those surveyed will rely on large financial markets data aggregators. Finally, analytics to interpret existing, new and unstructured data are becoming as critical as finding the data itself.

 

The bottom line? Everyone needs a data strategy.

 

Download & Acces full report

 

 

When plain crazy just isn’t mad enough

| 19-05-2016 | Pieter Jan van Krevel |

pieter jan krevel

So everybody knows about cat bonds. No, not corporate bonds issued by Caterpillar, but bonds linked to catastrophes. Sounds exciting, right?

Cat bonds were originally devised in the mid-1990s after Hurricane Andrew and the Northridge earthquake, both wreaking (financial) havoc in the U.S.
The financial havoc befell insurers, and the inception of the cat bonds stemmed from these events that cost the insurers a combined estimated USD 39 – 66 bn (1990s dollars). This hurt, so they devised a way to shift this risk in case disaster struck (in lieu of traditional reinsurance).

The principle is simple: investors get a handsome coupon (+300-2,000 bps spread) on a, generally, short-dated sub-investment grade bond (up to 3 yrs BB/B), if and only if, disaster does NOT strike. If it does strike, however, the investors forego their principal (let alone the coupon), and the insurers use this ‘windfall’ to pay the claims emanating from the disaster. These catastrophes, and therefore the cat bonds, are pretty much totally uncorrelated with any other asset class in a portfolio, and thus interesting and effective diversification material.

So far, so good.

But what if we take this a little further: in a way, a CDS can also be considered a cat bond. After all, we’re talking binary pay-off here. While I will not go into the (de-)merits of CDSs here, ‘disaster’ is a word that comes to mind when looking at the bloodied and mangled remains of many a CDS. But let’s leave that for another day

However for the final leap of faith we need to look at the Swiss: Credit Suisse has apparently invented the ultimate capital-relief instrument. Recently, news got out that Credit Suisse intends issuance of a special cat bond, linked to ‘operational risks’ by, amongst others, ‘failed internal processes’. We’re talking about external events, business disruptions (e.g. cybercrime), trade processing errors and, hold on to your seats, failures in regulatory compliance and rogue trading. So, when a Credit Suisse trader screws up its book (or someone else’s for that matter), the cat bond will be triggered and the trading losses will be (partly) absorbed. I fully agree to the premise that a screw-up in proprietary trading spells disaster nowadays – just think of Mr. Kerviel and JPMorgan’s London Whale to name but two.

However, there is one minor detail that sets this kind of catastrophe apart from the natural disasters that cat bonds started out to ‘reinsure’: these are man-made (financial) catastrophes, and can (and should) be mitigated by the checks and balances that financial institutions claim, and are obliged, to employ these days. Not to mention the fact that offloading risks by banks to insurers went a long way to melt down the global financial system in 2008. Who needs Andrew or Katrina when you’ve got quants and prop traders?

Sounds like a ‘Get out of jail free’ card to me. Although I am not quite sure whether Messrs. Leeson and Kerviel agree…

Pieter Jan van Krevel

 

Pieter Jan van Krevel

Owner at Slàinte Mhath!