Treasury Today Country Profiles in association with Citi

Money market portals

Already popular among corporates in the US, money market portals are starting to break through into the European market. But what are the advantages of these ‘fund supermarkets’ and how can you ensure that a money market portal is the right tool for your treasury department?

From omnibus to fully disclosed portals

Money market portals are, more often than not, provided by third party brokers or investment banks, and primarily provide a platform from which a corporate has access to a variety of money market funds for short-term investment purposes. In recent years, portals have expanded to encompass direct links to treasury systems to enable efficient investment of liquidity and reporting.

Historically, money market accounts set up by institutional investors via portals were ‘omnibus’, meaning that the money was transferred to the broker running the portal who would then invest it in the appropriate funds – but the money arrives at the fund under the name of the broker, albeit designated as a client account. Since the onset of the financial crisis and the resultant clamp down on control and visibility of cash, vendors have moved to provide direct trading platforms which transfer corporates’ cash directly to the funds. This means that the corporate maintains overall control and can build up a track record or even a relationship with the fund managers. This move towards direct trading has continued since the near collapse of Bear Stearns, where omnibus account holders had difficulty moving their money out of high risk areas.

Benefits of the direct route

The transparency offered by a direct money market portal allows corporates not only to track their cash but also to assess counterparty risks associated with the investment. Vince Tolve, Vice President, Corporate Sales and Account Management, Wealth Management, SunGard explains, “With a direct account, you remove the counterparty risk associated with using one broker and deal with the fund and their transfer agents instead. With an omnibus account any issue with the single counterparty could create issues with liquidity. Using a direct platform spreads risk across multiple counterparties rather than through just the single entity.”

Additionally, the processes of investing through a money market portal are often fully automated using straight through processing. This therefore reduces the need for manual rekeying, and therefore reduces the margin for error. An automated system also allows for better visibility of cash as well as enhanced reporting and audit capabilities.

The market at the moment

There are several portal vendors in the market place who all offer a different take on the same service. MyTreasury, an initiative by ICAP plc, came out of an EC-funded project which focused on making a portal easy to use and addressing the needs of corporate treasurers. Justin Meadows, Chief Executive, MyTreasury, explains, “We did two years of research funded by the European Commission and we involved over 200 corporate treasurers in the project. So if we’ve got it wrong then they ought to take us out and shoot us!” MyTreasury found that the largest demand from corporate treasury is for fully disclosed direct trading, as reflected by the current drive across the industry to provide this.

BNY Mellon is one of the largest bank providers of money market portals and operates Liquidity Direct, which is designed to give corporates access to all liquidity investments. BNY Mellon allows the portal to be used as a standalone product but it can also work in tandem with many of the bank’s other services and products. Jason Garwood, BNY Mellon, explains, “In the past portals have often been seen as vanilla products; however they have become far more sophisticated, particularly with value added features such as portfolio transparency analytics.”

In addition to analytical capabilities, vendors have also developed methods of controlling and managing risk, as well as creating the opportunity to set credit limits with the various funds. Justin Meadows explains, “Some of the big investors can hold quite large percentages of a fund, but typically they still have limits – they can’t hold more than 5% or 10% or they can’t put more than a fixed amount in (for example $100m or $200m). These parameters can be input when we onboard them, and any trade that is going to violate one of those conditions will be flagged up to them.”

Cost and integration

Portals are usually free for the investor and this often includes the cost of integration into the corporate’s treasury system. The portal providers are remunerated by the funds themselves by way of a small commission (usually a few basis points). Since the commission is slight, the investor should not be losing out on any return, but Meadows warns that some portals will take larger commissions, meaning that the choice of funds may be slimmer if some choose not to pay these higher rates and in order to balance out the overall cost, returns could be lower.

The portal space is highly competitive, which is why there is such a drive within the industry to provide the best service, and uniform integration. There are some systems that are not currently compatible, for example, MyTreasury is not currently able to integrate with ERP providers, although they are in discussions with SAP to work towards this integrated goal.

With the near zero cost of using a portal (it still requires basic resources such as man hours), some treasurers are changing the way they approach fund investment. Traditionally, a trading desk would have carried out ten to 15 trades a day, typically early in the morning to account for the time it takes to get a confirmation that the trade has taken place. However, since the introduction of real-time processing and automated trades via the portals, providers have seen far more trades taking place later in the day, very close to the fund’s cut-off times. According to Meadows, “Corporates are especially pleased because they’re always trying to trade at the last possible moment when they know that they’ve got the best possible view of their cash position.”

Points to consider

While money market portals appear to be corporate-friendly, particularly in terms of cost, it is still important to understand the small differences between vendors to ensure you are getting the most out of it:

Money market portals: a checklist

  • Platform infrastructure.

    Does the platform perform automated processes and integrate with any current systems your treasury is using? Is consolidated reporting a feature of the platform?

  • Relationships and transparency.

    Track the record of the provider and the underlying relationship between the portal and the fund providers. Does the portal offer full disclosure of assets?

  • Choice.

    Does the portal provide access to a range of investment options so that as the investment environment changes you can adjust weightings? How many funds can be accessed?

  • Costs.

    What are the costs and who pays them? Are returns any less if the investment is made via the portal?

Regulation

As with many areas of the financial sector, money market portals are undergoing regulation changes that may affect the way they work in the near future. In the US, from where many portal providers originate, the Securities Exchange Commission (SEC) has recently mandated some new disclosure and credit quality standards that the funds are now implementing. According to Tolve, “I think these regulations have been welcomed throughout the industry and we are adding more disclosures regarding credit requirements to our system. I believe the technology will continue to evolve to give clients more transparency into funds as that information is made available to the public and shareholders.”

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