Treasury Today Country Profiles in association with Citi

Microsoft

Microsoft, Winner, Best Risk Management Solution

Richard Parkinson and Jayna Bundy, Microsoft

Microsoft had initially envisaged a straight through processing (STP) system to confirm foreign exchange (FX) options similar to the process it adopted for spot and forwards. However, due to the more complex nature of options this task turned out to be much more challenging and Microsoft had thousands of FX option trades representing over £100 billion in notional exposure processed each year.

Photo of Richard Parkinson and Jayna Bundy, Microsoft.

Debdatta Banerjee

Treasury Manager

Jayna Bundy

Group Manager, Treasury Operations

Chase Johnson

Treasury Manager

Redmond, US

Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realise their full potential.

Jayna Bundy, Group Manager, Treasury Operations, recalls, “after benchmarking it was determined that there are few vendors which currently offer robust FX option matching, and we chose the Misys CMS platform. The end goal of this project was to strengthen our confirmation controls while increasing operational efficiencies.”

Translation.

Treasury’s first task was to work with Misys to create a custom translation which could parse existing reports from its front office entry system into a SWIFT file format for ingestion into the Misys CMS system.

Expiration detail automation.

Initially, treasury believed that expiration time and location details were not required matching criteria over Misys. However, this was not the case and the Microsoft team had to build a complex matrix of fixing time and location based off currencies, locations and also dependent on settlement type (eg non-deliverable option (NDO), physical or cash settled option).

Cash-settled options and legal footwork.

Cash settled options use fixing rates which are driven off the WM Company/Reuters rates. During the testing process, they discovered another major barrier in entering the above expiration information. MT305s (FX option confirmation SWIFT message used by Misys for vanilla option matching) does not have a field designated for this information for cash settled options.

Debdatta Banerjee, Treasury Manager, explains, “we also discovered that for cash settled options and NDOs we required a Master Confirmation Agreement between each Microsoft entity and each dealer entity we would trade under and with. Needless to say, this created an excess of legal paperwork which needed to be separately negotiated with each bank. The biggest sticking point and achievement here was that most of our bank partners had never entered into this particular arrangement before and so it needed to be explained to and vetted by their legal teams at length.”

Microsoft truly pushed boundaries and was the first entity using Misys to achieve complete auto-matching by building an extensive translation file. As a result Microsoft options now match on Misys with no manual click required.

The project has achieved some impressive results including:

  • Economic details of more than 1,000 FX options trades representing billions in notional positions each year are now being matched with counterparties via STP using SWIFT formatted messages.

  • Risk of trade confirmation errors, that could impact controls and financial reporting have been mitigated as manual confirmation points are eliminated.

  • Operational efficiencies are substantially improved and turnaround time for FX option confirmation is greatly reduced.

  • Aligned to their Go-Green initiative, automated matching eliminates the need to print, review, sign and return thousands of paper confirmations.

As Chase Johnson, Treasury Manager, concludes, “along with the several benefits that we obtained by implementing FX option matching over Misys, one huge by-product that we would like to draw attention to was our ability to meet our goal of Go-Green. In our old method for confirming options, we had to sign long confirmations for each option – some of them as could be up to eight pages long for a single option. The chances of manual error were huge as was the wastage of paper in case there were multiple versions due to dispute between Microsoft and the counterparties.

“With the new process, everything matches on a UI, we save time and paper through the elimination of thousands of paper confirmations, the audit trail is way easier to retrieve and the possibility of error has significantly reduced.”