This week’s International Treasurer editorial meeting brought forth a few issues that we’ll be exploring in the coming weeks. These include our continuing look at treasury efforts to support business growth, new nuances to the perennial discussion of treasury centralization and a look at initial margin (IM) vs. variation margin (VM) and corporate treasurers growing comfort with the latter.
Treasury striving to support the business. This topic is becoming increasingly important both in Asia, where it will be discussed in conjunction with The NeuGroup’s upcoming Asia Treasurers’ Peer Group (ATPG) meeting and across the globe based on takeaways from recently completed meetings. Business support means the traditional treasury operations infrastructure and advice on making use of it that treasury typically provides. But it also means identifying and mitigating counterparty risk, both financial and commercial and from a credit and operational risk perspective. On a higher level, it also means allowing local and regional treasury perspectives to color strategic planning decisions that are based on expectations for the markets they are closest to.
New nuances to treasury centralization. One of the interesting results from the ATPG pre-meeting survey was that regional treasurers want both more centralization and more impact on strategic decisions impacting the markets they know best (see above). This suggests that from a non-HQ perspective, centralization is clearly understood to be much more nuanced than simply bring everything back to HQ.
In the past, we’ve noted the desire to centralize into regional centers as opposed to having people even closer to the ground dispersed in local markets. The reason given is that it is difficult to foster a treasury perspective when there is only one treasury person is on site. Having a centered function in region may also help with a seat at the table with more strategic decisions.
Coming around to variation margin. ISDA, summarizing its comment letter on the BCBS and IOSCO consultative document on margin requirements for non-centrally-cleared derivatives, makes the case for variation margin and points to the needless hassles of posting initial margin. Something similar to this argument is being made by treasury practitioners, too. We will explore further margin considerations and to what extent corporate treasurers should be building in margin frameworks into their CSAs, what they might look like and the resourcing to support them.