What’s on International Treasurer’s radar screen this week.
Several topics arose from this week’s editorial meeting that International Treasurer will flesh out in the coming weeks. First off is a concern we touched on briefly in Wednesday’s post in relation to The NeuGroup’s Treasury Investment Managers’ (TIMPG) upcoming meeting agenda; specifically the issue of settlement risk with bank counterparties. Second is a question of why some banks have been slow to offer live feed pricing to clients. We’ll also delve into how companies are managing coming Dodd-Frank mandates.
Settlement risk.
Amid the slow recovery and an anti-bank atmosphere, there is growing concern about settlement risk, particularly as it relates to foreign exchange. The fear is of the Lehman stripe, where companies are looking at their settlement exposure to make sure a bank won’t go out of business mid-trade. Companies, as a result, are making sure they are not overly exposed to that bank. Some companies will even go so far as to stopping a trade because they feel they have too much exposure. Companies also are reviewing how far CLS (continuous link settlement) bank coverage goes and whether it’s enough. Some would claim the majority of settlement risk in foreign exchange has been reduced to zero with CLS but others think differently.
Live pricing.
In a recent NeuGroup meeting, members discussed their disappointment with bank offerings in terms of live quotes. Apparently, some banks have been slow to offer live pricing, forcing some companies to trade through their own portals or other means. IT will delve into why this is so – is it part of a strategy or is just a lack of commitment by banks to provide a platform whereby companies can get current pricing?
Treasury takes the lead.
In a pre-meeting survey for The NeuGroup’s FX Managers’ Peer Group 2 (FXMPG2), members report that treasury is taking the lead in managing how the company handles Dodd-Frank legislation. Along with treasury, legal, accounting and the controller often contribute or collaborate. To gain clarity on the new regulations, most companies turn to their banks for information about what the rules will mean and what companies must do to comply. So far, most companies have done little to prepare, other than gain the necessary knowledge. However, companies shouldn’t get complacent and feel that just because they do not, say, have to clear derivative trades, they don’t need to pay too much attention. They should know, too, that just because the CFTC says something is legitimate, doesn’t mean the Federal Reserve or other regulators will agree – margin requirements, for example (see related story here).