Harnessing the Network of Banking Intelligence Misys Treasury & Capital Markets Streamlining Treasury & Capital Markets operations for competitive advantage.

Harnessing the Network of Banking Intelligence

Misys Treasury & Capital Markets

Streamlining Treasury & Capital Markets operations for competitive advantage

Vincent Kilcoyne MSc. PhDMisys Treasury Operations Expert

Head of Business SolutionsEMEA


Agenda

• Challenges facing Treasuries

• Sample Treasury Architecture

• Misys Approach

• OpicsPlus Overview

• Questions ?


• Business Drivers– Workflow and Operational Efficiency– Commoditisation of Treasury Products– Regulation

• Technology Drivers– Componentisation– Web Enablement– Outsourcing and ASP Services

Key Market Drivers


• Workflow and Operational Efficiency– Automation top priority– Reverse trend in Headcount growth– Banks focus on headcount in proportion to returns– Highly skilled individuals not wasting time on menial tasks– Reduce Error Rates– Reduce Transaction costs

Business Drivers


Market Evolution

0%10%20%30%40%50%60%70%80%90%

100%

1991 1996 2001 2006

Physical Settlement

Settle Electronically With Intervention

Settle Electronically

Back-office operations –from labour-intensive to “systems intensive”


Cost per TradeYear on Year Trends

• For FX, the Cost per Trade has steadily decreased over the last 5 years despite some fluctuation in average volumes. In 2004, CLS completed its first full year of processing and this has further contributed to the ability of banks to 'scale up' their processing without a measurable increase in headcount.

• For Currency Options, the Cost per Trade remained relatively static in 2004 despite another significant increase in average trade volume, part of this was due to the increase in the volume of corporate & exotic trades.

• The Cost per Trade for Money Markets continues to reduce, indicating that technology improvements have been made in a previously "unfashionable" area.

Year on Year - Operations Cost per Trade & Volume Trends

$ 0

$ 2

$ 4

$ 6

$ 8

2000 2001 2002 2003 2004

Cos

t pe

r Tra

de

0

500,000

1,000,000

1,500,000

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2,500,000

3,000,000

Avg. Cost per Trade Avg. Volume

$ 0

$ 10

$ 20

$ 30

$ 40

2000 2001 2002 2003 2004

0

20,000

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140,000

$ 0

$ 5

$ 10

$ 15

$ 20

2000 2001 2002 2003 2004

0

100,000

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Ann

ual T

rade

Vol

ume

Foreign Exchange Money MarketsCurrency Options


Cost per TradeYear on Year Trends

• For Interest rate Derivatives, static volumes and the rise in the Cost per Head have contributed to a rise in the Cost per Trade

• For Credit and Equity Derivatives, a rise in volume together with increased usage of industry utilities and better technology has driven a rise in Operational Throughput and thus a reduction in the Cost per Trade.

Year-On-Year Change in Operations Cost per Trade

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2003 2004 2003 2004 2003 2004

IR Derivatives Credit Derivatives Equity Derivatives

0

10,000

20,000

30,000

40,000

50,000

60,000

Cost per Trade Average Trade Volume


Can you afford to ignore thisthis ?

= 25%

Operational Risk –


• Commoditisation of Treasury Products– Increased complexity and broader coverage of asset classes

• Treasuries demand improved ease of access• Banks and clients keen to deal in more complex instruments

– Increased interest in Riskier markets and Financial Instruments• Declining margins in traditional FX and MM• Increased trading in Higher Return markets• Banks must have appropriate infrastructure and risk management processes

– Improved client service and delivery models• Banks are forced to differentiane on service, and breadth of offering

Business Drivers


• Regulation– IAS39/FAS133

• Not all organisations are fully compliant• Lack of integration causes:

» Increased operational risk» Inconsistencies between models will cause errors in accounting systems

– Sarbanes-Oxley• Strict requirements on PLC’s regarding disclosure and transparency• Many treasuries will be forced to adapt/change existing treasury solutions to support Sarbox

requirements.

– BASLE II—Deadline 2007• Implications

– Banks must put more comprehensive systems in place for calculation of risk exposure– Treasury is a contributor to the overall risk position of the bank– Inadequate processes in Treasury (operational Risk) could increas exposure

Business Drivers


• Componentization– Banks traditionally see packaged solutions as not meeting their specific needs in terms of

• Scalability• Functionality

– New development platforms such as J2EE and .NET drive the trend towards open architecture• Allows easier customisation• Cleaner Customisation• Easier Integration• Packaged solutions using these approaches are seen as more viable

– Banks see flexibility as a priority for long-term treasury systems strategy

Technology Drivers


• Web Enablement– Internet and Thin-client result in cheaper way of distributing access to core systems for

• Internal Staff– Result in increasing centralisation– Greater control and monitoring

• Corporate clients for ”Self-Service”– Reduction in error rates and transaction costs

• Outsourcing and ASP Services– Primarily targeted at Regional Banks and Buy-Side (Hedge Funds, corporates etc.) – Not really practical for large banks as they see core treasury as part of their expertise.

• Mainly provided by large institutions e.g. ABNAmro, JPMC using either Vendor applications or in-house

Technology Drivers




• Misys Approach


• Questions ?


IT – critical enabler to achieve STP ?The current systems architecture landscape:

Forex Money Markets Fixed Income Equities

•Product coverage Product coverage by business areaby business area

– Forex Spot & Fwd.– Swap & Time Deposit– Repo– OTC Derivatives

– Bond– Repo– OTC and exchange-

traded derivatives

– Equity (Brokerage)– Equity derivatives

– Foreign bonds issuance


What is the result of this disparity

• Integration Complexity– High degree of effort, initial and maintenance

• Approximately 60% of the implemetation effort is spent on Integration

• Deployment • Uniformity of treatment

– Are we suffering from ”Internal Argitrage” or ”Model Risk”• Workflow

– Where is my transaction ?– Do I have a clear control or understanding of the Workflow– How many systems do my staff need to learn– Can my Back office system(s) support the same products as my Front Office

system(s)• What happens if the answer is no ?• Are we relying on Excel and Access




• Misys Approach


• Questions ?

Misys Banking Systems


• Misys’s Financial Markets Solutions –A holistic view of your financial markets operations based on our E-STP concept



BUT !

A Solution is more than product !!!


What Solution means to us !

– Functionality that has evolved through extensive use in multiple segments and locations.

– Confidence that our products will stay in tune with new trends

– Technical

– Functional

– Best Practice Implementations.• Bringing true life implementation experience to you

» Decreased Implementation times

» Industry proven approaches


An Important Question

STP:

Process

or

Philosophy ?


What are your real STP rates

Description Single Occurance

Replication/Enrichment

STP Rate

Transaction Yes No 90%

Client Details Yes Yes 85%

Yield Curves No Yes 80%

Rates/Prices No Yes 75%

Settlement Instructions

Yes Yes 70%

Others Yes Yes ?%


Is STP simply a term used to reflect the flow and management of transactions ?

In reality, it is much more !!




• Misys Approach


• Questions ?



OPICSPlusOPICSPlusOPICSPlusOPICSPlusAccountingAccounting

ManagementManagementAccountingAccounting

ManagementManagement

SubSubLedgerLedger

SubSubLedgerLedger

AccountingAccountingAccountingAccounting

Risk MgmtRisk MgmtRisk MgmtRisk Mgmt

Liquidity MgmtLiquidity MgmtLiquidity MgmtLiquidity Mgmt

Performance MgmtPerformance MgmtPerformance MgmtPerformance Mgmt

Limits &Limits &Compliance MgmtCompliance Mgmt

Limits &Limits &Compliance MgmtCompliance Mgmt

Middle OfficeMiddle OfficeMiddle OfficeMiddle Office

Decision SupportDecision SupportDecision SupportDecision Support

PortfolioPortfolioManagementManagement

PortfolioPortfolioManagementManagement

Order MgmtOrder MgmtOrder MgmtOrder Mgmt

TradingTradingTradingTrading

Front OfficeFront OfficeFront OfficeFront Office

Cash MgmtCash MgmtCash MgmtCash Mgmt

Custody MgmtCustody MgmtCustody MgmtCustody Mgmt

Clearing andClearing andSettlementSettlement

Clearing andClearing andSettlementSettlement

Back OfficeBack OfficeBack OfficeBack Office

Market InfoMarket InfoMarket InfoMarket Info Clear & Settle Clear & Settle LinkLink

Clear & Settle Clear & Settle LinkLink

General General LedgersLedgersGeneral General LedgersLedgers

ExternaExternal Linksl Links

ExternaExternal Linksl Links

Work StationWork StationWork StationWork Station Internet Internet ClientClient

Internet Internet ClientClient

1st Qtr1st Qtr2nd Qtr2nd Qtr002020404060608080

1st Qtr1st Qtr2nd Qtr2nd Qtr

eOpicseOpicseOpicseOpicsUserUser

InterfacesInterfaces

Product Overview


Summary

•A treasury solution designed by practitioners

•Extensive Customer Base. Approximately 250 sites

•Providing full automation for transaction lifecycle, trading activities and workflow control

•Enabling institutions to streamline their treasury business through efficient workflows

Harnessing the Network of Banking Intelligence Misys Treasury & Capital Markets Streamlining Treasury & Capital Markets operations for competitive advantage.

Documents

operational risk slide

treasury operational

core treasury

systems intensive slide

trade year

large banks

implications banks

viable banks