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Best Foreign Exchange Solution Winner: HP Inc.

Published: Aug 2020

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Photo of Peter Chau, Director FX & Investments and Nikhil Handa, Treasury Manager.

Peter Chau

Director FX & Investments

Nikhil Handa

Treasury Manager

HP is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services. HP sells to individual consumers, small- and medium-sized businesses (“SMBs”) and large enterprises, including customers in the government, health and education sectors.

In-house FX solution delivers outstanding results at HP

The challenge

HP Inc. operates multi-billion-dollar foreign exchange and balance sheet hedging programmes. Historically, the company competitively bid trades with selected banks based on ad-hoc and short-dated analysis. Considering the ever-increasing competitive foreign exchange marketplace, the HP treasury team launched a project aimed at reducing execution costs and increasing visibility to counterparties’ performance.

The following areas of improvement were identified:

Bank performance: HP Inc. utilised manual methods to quantitatively and qualitatively assess counterparties’ strengths and weaknesses. Banks’ feedback primarily revolved around trading process or hit ratios without particularly robust data analysis.

Counterparty selection: Limited insights for selecting trading partners could result in undesirable outcomes. In order to reduce such outcomes, the company focused on understanding the challenges faced by the HP treasury FX team.

Execution: While bidding trades of different values and currency pairs, a thorough understanding of trading costs and associated parameters was required. Treasury reviewed two years of trading data to uncover the keys areas to focus upon.

The solution

HP has developed the following:

  • Treasury analytics: treasury focused its resources on gathering and applying quantitative and qualitative insights while preparing to trade balance sheet and cash flow hedging programmes. The team accomplished the goal via:

  • Metrics: the team, working with banking partners, finalised a set of key performance metrics to be used in assessment of counterparties’ performance. The metrics include but are not limited to:

  • Next best price: methodology to estimate price savings is based on missed chance. Large deviations between prices of winning bid and next best bid increase the odds of missing the best price, as banks were historically chosen at random. Narrower winning margins resulted in lower chances of missing the best price along with increased price competition.

  • Three month moving average: they coded new measures in data visualisation tool (Power BI) to explain consistency of banks’ performance during a trailing three-month period.

  • Power BI: treasury invested in Power BI as the main data visualisation tool to help determine top banks for different currency and trade types. The company started leveraging the platform to aggregate information from different sources and develop a dynamic view of key metrics prior to trading.

  • HP treasury algo programme: treasury hosted extensive discussions with banking partners in order to develop a best in class corporate algo programme. HP treasury is a beneficiary of multiple bespoke TCA reports automatically populated by counterparties upon completion of trade orders. This information is fed to the company’s internal models, helping to analyse performance of algo strategies per given currency pair, notional size and time of day. The key parameters consist of:

  • HP risk transfer.

  • HP spread savings.

  • Market impact.

  • Optimal duration and strategy.

  • Algo intelligence.

Best practice and innovation

Treasury successfully developed an FX execution framework guided by data and has produced results to support a data driven decision-making for FX trading. Additionally, the algo programme’s success is another step towards treasury automation albeit under defined parameters and supervision.

Lastly, HP treasury has adapted technology and merged it seamlessly with daily front-office functions and systems. This achievement illustrates for other corporate treasuries with legacy practices, as well as those at nascent stages of development, the worthwhile investment in data-driven decision-making for FX trade execution and a best-in-class approach to treasury financial risk management.

Key benefits

  • Process efficiencies and productivity gains.

  • Execution savings.

  • Risks mitigated with banks rotated using analytics developed.

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