In an effort to increase return on working capital abroad, Google began investing in Foreign Government Bonds (FGB’s) in 2009. The use of FGB instruments at Google was highly automated, except for the settlement process.
The FGB settlement process was highly manual, prohibiting scalability and resulting in missed investment opportunities. The process also relied on manual data entry which was prone to data entry errors, resulting in duplication and overdraft fees. Moreover, the manual settlement process enhanced counterparty risk as FGB’s are traded in the bonds’ native currencies and purchases first require that necessary funds be converted from US dollars into these native currencies.
As Brent Callinicos, VP, Treasurer, Google, explains, “In an effort to ensure Google optimises capital invested in FGB’s and is not constrained by manual processes, we embarked on a project to automate the FGB settlement process.”
The key objectives were:
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Scalability.
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Straight through processing.
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Reduced counterparty risk on foreign exchange conversions to fund FGB purchases.
After carefully reviewing the range of options available to settle FX transactions supporting FGB trading, Google chose an innovative industry solution called Continuous Linked Settlement (CLS).
While Google had already invested heavily in a foreign exchange settlement process utilizing a third party application, it quickly became apparent that this alternative solution would prove more advantageous for settling FGB purchase conversions.
The dedicated nature of CLS, a consortium founded and backed by financial institutions explicitly to provide foreign exchange settlement services to the market, was a driving reason to convert from the third-party solution. CLS leverages industry-standard infrastructure which utilises the MT300 SWIFT message series and already featured an existing connection with Google’s custodian of record, State Street.
As a result of leveraging CLS for settlement, Google were able to decrease project time, cost and resources by 60%. The CLS solution was fully implemented within two months and provided a wider breadth of institutions through which Google could settle FGB transactions. In addition, because CLS is representative of a consortium of financial institutions, Google now has access to a level of settlement knowledge and expertise that was previously unavailable. Ongoing maintenance is also a CLS responsibility and therefore not a burden on Google.
However, as Callinicos says, “The greatest benefit is the opportunity to invest in FGB’s immediately and increase returns on working capital.”
Google’s CLS initiative deserves recognition for ‘harnessing the power of technology’ as it epitomises innovation and exploration outside existing paradigms for solutions. The company had an existing foreign exchange settlement solution, but in a relentless pursuit for better solutions, Google determined that the CLS proposition provided a faster time to implementation, which allowed for a more aggressive FGB investment strategy. “The ultimate impact of this implementation will reduce counterparty risk as well as increase ROI on previously inaccessible investment opportunities and provide enhanced scalability to a wider array of financial institutions via CLS,” concludes Callinicos.
