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September 2011 SAP Treasury and Risk Management An Introduction
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Page 1: 89 Introduction to SAP Transaction Manager

September 2011

SAP Treasury and Risk Management

An Introduction

Page 2: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 2

Treasury applications from SAP

SAP Treasury and Risk Management

Risk Analyzers

Transaction Manager

Money Market

Foreign Exchange

Secu- rities

Com- modities

Deri- vatives

Debt Mgmt

Manage Global

Financial Risks

Optimize Debt and

Investment Strategies

Manage Cash

and Liquidity

SAP Cash and Liquidity Management

Cash Management Liquidity Planning

Optimize Payments and

Bank Communication

SAP In-House Cash

SAP Bank Communication Management

Exposure Management Hedge Management

Credit Risk Analyzer Market Risk Analyzer Portfolio Analyzer

Treasury Applications from SAP

Financial Excellence

Page 3: 89 Introduction to SAP Transaction Manager

2

4

5

Cash Management

Bank Communication

Management

Liquidity Forecast

Internal Banking

Risk Analyzers 6

Treasury Management

3

The SAP Treasury Solution Suite

1

Page 4: 89 Introduction to SAP Transaction Manager

Managing Treasury and Risk Management at a glance

Credit Risk Analyzer

Utilization: Formulas, Credit

risk, Settlement risk

Limit management:

Limits freely definable,

Multidimensional limits

Market Risk Analyzer

Price calculator: NPV, Prices,

Sensitivities

Value at risk: Variance/covariance,

Historic, Monte Carlo Simulation

Simulate rates: What-if scenario,

Relative, Absolute

Portfolio Analyzer

Yield calculations:

Money weighted,

Time weighted,

Modified Dietz method

Benchmarking:

Performance Indicators

xxxxxxxxxxxxxxxxxxxxxxxx

Front office: Position and deal reporting, Deal capture, Exercise, Dealer slip, Valuation tools,

Online limit check

Back office: Standing instructions, Correspondence Monitor, Netting, Settlement, Rate fixing

(interest, FX), References, Corporate actions, Process monitors

Accounting: Flexible accounting determination, Accounting according to many international

accounting standards

Spot

Forward

Swaps

Options

Futures

Foreign

Exchange Bonds

Bank loans

Commercial Paper

Facilities

Debt Mgmt Securities

Bonds Warrants Stocks Certificates Repo Sec. lending

Derivatives

Cap Floor FRA Swaps Options Futures

Money

Market Fixed –term

deposits Commercial

Paper Repo

Commodities

Futures

Forwards

Traded Options

Swaps

OTC-Options

Transaction Manager

Hedge Management Exposure Management

Centralized Database to gather group and

version data and transfer to Hedge Management Administration of hedge plans, exposures, hedge

items and hedging relationships

Risk Analyzers

Reporting tools:

SAP Query, ABAP List, Other

3rd-party providers, BI,

Business Objects Dashboards

and Xcelsius

Middle office:

Risk exposure, Controlling,

Compliance

Management reports:

Positions, Performance, Ratios,

Compliance

Ad-hoc reporting:

Point & click, Unified

databases, Position, P&L,

Period, Cash Flow

Results database:

Portfolio Hierarchy, Drill-down,

Historic results

Data export:

Excel, Flat files, BI

Reporting

Page 5: 89 Introduction to SAP Transaction Manager

Transaction and Position Management Process

Back

Office Account-

ing

Front

Office

Mid

Office

Exposure

analysis

Decision support

Comfortable deal

entry

Standing

instructions

On-line limit

check

Position reporting

Posting of

Treasury flows to

the G/L

Valuation

according to

several GAAP’s in

parallel areas

Support for IAS

39 / US-GAAP

and Hedge

Accounting

Flexible process

definition

Settlement

Correspondence

Interest rate

adjustments

Payments

Alert monitor

Instrument pricing

Risk analysis

Sensitivity

analysis

Re-

porting

Standard

reporting

Ad-hock reporting

Controlling

Limit reporting

Management

reporting

Page 6: 89 Introduction to SAP Transaction Manager

Selection of Product Types

© SAP AG 2009. All rights reserved. / Page 6

Money Market

Fixed-term deposits (e.g., overnight deposits at notice)

Commercial paper

Repo

Floating rate

Any cash flows

Spot

Forward

Swap

Vanilla options

Barrier options (single and double)

Compound options

Average rate options

Basked options

Exchange-traded options

Foreign

Exchange

Securities

(Investments)

Bonds ABS /MBS /CMO Index-linked

bonds Dual currency

bonds Drawable bonds Warrant Bonds Stocks Shareholdings Subscription

rights Investment

certificates Repo/ Reverse

Repo Security lending

Cap

Floor

FRA

Swaps

Payer/Receiver, Fixed/Basis, Exotics (e.g., roller coaster)

OTC options

Security, Swaption, IRG

Futures

Exchange traded options

Total Return Swap

Interest &

Equity

Derivatives

Debt

Management

Issued bonds

Fixed/ floating/ zero interest, Bullet repayment/ with repayment/ ABS structures

Fixed rate loans

Floating rate loans

Annuity loans

Commercial Paper

Facilities (bilateral or syndicated)

P o r t f o l i o A n a l y z e r

M a r k e t R i s k A n a l y z e r

R e p o r t i n g

T r a n s a c t i o n M a n a g e r

C r e d i t R i s k A n a l y z e r

Futures

Forwards

Traded Options

Swaps

OTC-Options

Commodities

Page 7: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 7

Managing Commodities and Financial Instruments Risk

All kinds of commodity types and hedging

instruments can be managed in SAP

Commodities (examples)

Crude Oil, gas, coal

Metals including noble metals

Corn, maize, soybean

Coffee, cacao, cotton, sugar

Orange juice, lemon juice

Cattle (cows, pigs)

Certificates on emission

Hedging Instruments

Futures and Traded Options

Forwards

Swaps (planning status)

OTC Options (planning status)

Page 8: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 8

Exposure Management – Example for Commodities

Exposure

Management

Transaction

Manager

Hedge

Management

Market Risk

Analyzer

Treasury and Risk Management

SAP ERP

Operations

SD, MM

or GTM

Excel

Spreadsheets

Other sources

of Exposures

SAP ERP Financials

Commodity front office system - if needed

Page 9: 89 Introduction to SAP Transaction Manager

Page 9

Class information

retrieved automatically

Configurable entry screen and

customizable default values per field

Drill-down to class details and

business partner details

Pre-defined business

calendars and automatic

date checks

Integrated effective

interest rate calculator

Automatic calculation

of derived flows Automatic cash flow projection

Display of corresponding

market rates and according

warnings

Integrated online

limit check

Automatic determination

of payment instructions

Automatic transfer to Back Office

Transaction Processing - Trading:

Convenient Transaction Entry

Page 10: 89 Introduction to SAP Transaction Manager

Page 10

Transaction Processing –

Back Office Processing: Settlement

•“Settlement“ is an optional transaction processing step

• The transaction is reviewed by a back office processor to satisfy the four-eyes

principle (segregation of duties)

• Optionally, information not entered by the trader can be supplemented by the back

office processor

• Only after the reviewer changes the status of a transaction to ‘settled’, it is cleared

for posting and payments.

Page 11: 89 Introduction to SAP Transaction Manager

Create / send

correspondence Automatic

matching

•Real Straight Through Processing from deal capturing via new integrated

Correspondence Monitor to parallel accounting with a highly sophisticated authorization concept

behind.

Receive incoming

correspondence

Error handling /

manual matching

Release process

use customer

defined channels,

mediums and

formats

Fax, email, print

and swift file

transfers are

preconfigured

Predefined format

(incoming and

outgoing) for

MT300, MT320

and free text

MT399

Tracking of

incoming

correspondence

use customer

defined channels,

mediums and

formats

Fax, email, print

and swift file

transfers are

preconfigured

Predefined format

(incoming and

outgoing) for

MT300, MT320

free text MT399

Customizable

matching

proposal

Automatic

matching when

message is

coming in or

going out possible

Update status of

the deal or trigger

a automatic

settlement of the

deal

Correspondence

monitor e.g.

Navigate in all

directions

Improved status

tracking for the

messages

Show all

correspondence

objects assigned

to one deal

Show matches

Manual

assignment of

correspondence

to deals

Receive ACK and

NACK messages

Deal

capturing

Transaction Manager

Efficiency with Correspondence Monitor (new with EhP4)

Page 12: 89 Introduction to SAP Transaction Manager

Create message

and send

Create SWIFT file

envelope

Send file to SWIFT

alliance gateway

Creation of MT

message automatically

or manually in the

correspondence

monitor

Save message on file

server

PI picks up the data

from the file server in

predefined time

intervals

SWIFT Integration

Package picks

up data

Data from file

adapter uploaded

to TRM

Open SWIFT file

envelope

Get file from

SWIFT alliance

gateway

Automatic matching

process is triggered

automatically

whenever a file

appears

SWIFT Integration

Package put

data on file adapter

Integration package for

SWIFT

PI saves file on file

adapter

Integration package for

SWIFT

Integration package for

SWIFT

Integration package for

SWIFT

Transaction Manager

Incoming and Outgoing Messages Using SWIFT Integration Package

Page 13: 89 Introduction to SAP Transaction Manager

Alternative deal capturing by connection to Market Places

Automation of download of FX transactions made on market places

such as 360T, FXall or Currenex

Available for FX spot, FX forward and FX options

Possible to enter all data for the FX transaction with one interface

SAP Treasury and

Risk Management Market Place

Bank A

Bank B

Bank C

Transaction Manager

Straight-Through Processing for External Deals

Page 14: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 14

Accounting Straight-Through Processing

Straight-through processing of financial deals is achieved in combination with

a highly flexible accounting engine.

Simple Example

German GAAP (HGB) IAS / US GAAP

9000 9000 9000

write-up no write-up

9800

Real-Time update of your accounting position

Automatic posting incl. flexible account determination

Hedge Accounting (e.g. FAS133/138, IFRS 39)

Support of several accounting standards in parallel

Purchase of 100

shares at USD 90

per share

= USD 9,000

Stock price on

valuation key date:

USD 98 (market value)

Page 15: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights

reserved. / Page 15

Automatic

creation of

correspondence

Valuation

(parallel)

Automatic

posting

Automatic

accrual/

deferral

Transaction Manager

Fully integrated

Page 16: 89 Introduction to SAP Transaction Manager

2

4

5

Cash Management

Bank Communication

Management

Liquidity Forecast

Internal Banking

Risk Analyzers 6

Treasury Management

3

The SAP Treasury Solution Suite

1

Page 17: 89 Introduction to SAP Transaction Manager

Transaction

Manager

Business- partner

Money Market

Securities

Derivatives

Forex

Commodities

REPORTING:

Externally

maintained

transactions

General Ledger Integration

Cash

Managem.

Analyzers

Market Risk

Analyzer Portfolio

Analyzer

Credit Risk

Analyzer

Market Data

FX Rates

Yield Curves

Indices

Volatilities

SAP Modules in Treasury Analyzers

Page 18: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 18

CM

EDT

SAP

NON SAP -

External

NPV, VaR,

Exposure, Keyfigures

Results

Analysis/Reporting/Planning

Market data

Online data feed

Simulated

Shifts

Scenarios

Pricing Engine

NPV

VaR

Sensitivity

Datapool TM CML

SAP Market Risk Analyzer

Process

Page 19: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 19

SAP MRA: Net Present Value Concept

Market data

Calculation Evaluations

Risk management

Saved market prices

Real-time market prices

Flexible scenarios

Rule shifts

Mark-to-market

Sensitivities

Duration

Convexity

Exposure

Crash/stress tests

Company

Portfolio

Profit center

Product

Transaction data

Linear

Debts

Assets

....

Non-linear

Options

Caps

....

Price calculator (user exit)

NPV

Risk

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1 M 2 Y 4 Y 6 Y 8 Y 10 Y

Yield curve 5 (+) Current. yield curve Yield curve 6 (long-term)

Base portfolio

Bonds/New York

Base portfolio

Bonds/Frankfurt

LEVEL 1

Trading: Swaps

LEVEL 1

Trading: Bonds

LEVEL 2

Trading: Interest products

Page 20: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 20

SAP MRA: Value at Risk

Historical market parameters

Calculation Evaluations

Risk management

Market interest rates

Exchange rates

Stock prices

Volatilities

Correlations

Historical simulation

Monte Carlo Full valuation

Delta method

Delta/gamma method

Variance/covariance

Backtesting

0

5

10

15

20

25

30

35

40

45

50

< -

95

< -

85

<-7

5

< -

65

< -

55

<-4

5

<-3

5

<-2

5

<-1

5

<-5

<5

< 1

5

< 2

5

< 3

5

< 4

5

< 5

5

< 6

5

< 7

5

< 8

5

< 5

00

No. Date NPV Risk Confidence

Interval

1 Feb 81 483.9 -134.3

2 May 81 524.8 -93.3 99.0%

3 Mar 80 530.6 -87.5

4 Feb 90 538.9 -79.2

5 Feb 80 543.8 -74.3

6 Feb 74 546.8 -71.3 97,5%

7 Jun 82 557.5 -60.6

8 May 83 559.8 -58.3

9 Oct 72 560.5 -57.7

10 Feb 94 562.6 -55.5

11 May 79 564.2 -53.9

12 Oct 79 565.5 -52.6

13 Feb 85 569.1 -49.0 95.0%

Company

Portfolio

Profit center

Product

Transaction data

Bal. sheet

Debts

Assets

....

Non-linear

Options

Caps

....

Price calculator (user exit)

Base portfolio

Bonds/New York

Base portfolio

Bonds/Frankfurt

LEVEL 1

Trading: Swaps

LEVEL 1

Trading: Bonds

LEVEL 2

Trading: Interest products

Page 21: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 21

Deal

Limit check

O.K.

End-of-Day Processing

Exposure

8.5

632.3

688.1

12.3

Limit

10.5

700.7

716.7

4.8

Partner

Euro Bank

United Bank

Carlton

Brightline

Reporting

Limit

Attributable

amount

Request

Start of workflow, when limit is ‘Breached’

T

r

a

n

s

a

c

t

i

o

n

M

a

n

a

g

e

m e

n

t

Util. in %

80.9%

90.3%

96.0%

256.3%

Free Limit

2.0

68.4

28.6

-7.5

Credit Risk Management

Process

Page 22: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 22

SAP CRA: Relative Limits

Can compare same key figures

from different portfolios

or

Different key figures from the

same portfolio

Can choose the ‘Utilization

Portfolio’ and the ‘Reference

Portfolio’. They can be same or

different.

Limits can be defined as

‘Percentage’, ‘Absolute’ Or ‘Both

Percentage and Absolute’

Choose Utilization Portfolio

Utilization Key Figure

Choose Reference Portfolio

Reference Key Figure

Define Limits Percentage

Define Limits Absolute

Page 23: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 23

Building organizational

structures

Asset allocation

Business transactions

Investment strategy

Determination of benchmark

Improvement and alignment

Reporting

and revision

Risk adjustment

Performance measurement

Benchmarking

Portfolio Analyzer

Portfolio Analyzer

SAP Treasury

and Risk

Management

Page 24: 89 Introduction to SAP Transaction Manager

© SAP AG 2009. All rights reserved. / Page 24

SAP PA: Performance Analytics –

Benchmarking Reporting

Page 25: 89 Introduction to SAP Transaction Manager

September 2011

SAP Treasury and Risk Management

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