Risk Management

The fundamentals of end-to-end FX excellence

Published: Jul 2018

In a recent webinar, representatives of Thomson Reuters and Sime Darby Hong Kong explained how to achieve end-to-end FX excellence.


Chan Man Wai

Treasury Manager Sime Darby Motor Group Hong Kong

Raj Melvani

Head of Market Development, Corporates & Commodities, Asia

Dan Guille

Director, Transaction Sales

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Recent currency market volatility has highlighted the need for many treasury teams to pay close attention to FX risk-management. For this reason, treasury teams are introducing technology into their FX workflow. It can enable them to streamline FX processes, better manage currency risk, and conduct post-trade analysis, as part of a programme to proactively seek continuous improvements.

Sime Darby Motor Group (HK) is one company that has taken this approach. The company used to struggle to manage the financial risk surrounding its foreign currency forward supplier payments. Treasury could not lock-in the costs of its trades and execute at fair market prices. It also had difficulty providing accurate forecasts to management.

To overcome this challenge, treasury revamped its pre-trade FX risk management process by deploying Thomson Reuters cross-asset pre-trade analytics solution. This allows treasury to determine the fair market value of FX forward contracts by utilising trusted calculators and unbiased market-data. The same solution allows Sime Darby Motor Group (HK) to assess ongoing mark-to-market pricing and benchmark their performance.

Using this technology has revolutionised how the company manages its FX exposures and delivered multiple benefits. “We have reduced the pricing of our FX forward contracts and short-term financing, lowering the overall cost to the business,” says Chan Man Wai, Treasury Manager at Sime Darby Motor Group Hong Kong. “Additionally, we’ve enhanced our negotiation power when dealing with the banks. We now also have documentary evidence to show management that treasury is executing hedges at the best market price and adding value to the organisation.”

Sime Darby Motor Group HK is also enjoying a more streamlined and automated FX trade workflow. This is something that Raj Melvani, Head of Market Development, Corporates & Commodities, Asia at Thomson Reuters says corporates building a centralised treasury operation should look to do. “For a majority of organisations, Treasury is considered a cost centre meaning there’s always pressure to do more with less,“he says. “Automating the FX workflow plays to these goals and allows treasury to generate cost and resource savings through increased efficiency.”

Beyond this, automating the FX workflow brings further benefits. Melvani explains that it allows treasury to deploy better controls and encourage segregation of duties. “Treasury can also aggregate trades across the group and execute from a single location. This reduces fees and treasury may improve pricing.”

An automated FX workflow also allows corporates to conduct post-trade execution quality analysis (EQA), something being considered by more corporates. Indeed, a poll of the audience during the webinar found that 85% see value in using post-trade analysis to benchmark FX deals.

Poll 1: Do you see value in using post-trade analysis to benchmark your FX deals?

Dan Guille, Director, Transaction Sales at Thomson Reuters, isn’t surprised by this. He says corporates are more focused on how they trade with counterparties and if this is delivering value. Guille explains that EQA allows corporates to get into the “nuts and bolts” of FX risk management. Significantly, it highlights whether corporates are paying the market-rate for their deals or if better pricing can be achieved elsewhere. As an illustration, EQA can show treasurers if better-pricing can be achieved by trading a certain currency at a particular point in the day or by using a different bank. “This is valuable data for a treasurer and allows them to make small tweaks to how they trade, which often results in significant cost savings.”

Melvani concludes by highlighting that these tools do not require significant investment – something that previously deterred some corporates in Asia. “FXall is deployed in the cloud,” he says. “This lowers the cost of installing and operating the system. It also means it can be scaled-up or down as FX trade volumes change. As a result, there is no reason that all corporates can’t achieve end-to-end FX excellence today.”

If you missed the webinar and would like to hear the full recording:

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