FX efficiencies - go with a different flow

Average daily FX volumes are expected to rise from US$2.9 trillion in early 2009 to US$4 trillion this year, according to analyst house, Celent. With this increase we can also expect a significant increase in electronic trade volumes as the market is hit with higher numbers of smaller value trades. Moreover, we can also see spreads on major currency pairs continuing to narrow. Given these shifting dynamics the speed and efficiency of FX trade processing must increase substantially for financial institutions to make money. However, while business volumes will increase dramatically, it would be counter-productive if costs – particularly operational costs – increase in-line with these revenues. For many heads of operations and back offices ‘the perfect storm’ is brewing. 

So, how can we significantly increase FX volumes without significantly increasing costs both now and in the future... How can we do more for less? 

Firms need to be smart and increase efficiency/effectiveness while supporting a need to diversify their product coverage – in less time, with less cost and with less risk. STP is key to achieving this, to improve compliance, and regulatory change, mitigate operational risk, and lower operational costs. However, there is also more pressure on STP, as greater trade volumes inevitably lead to an increase in exceptions. 

While some firms are making inroads, many back offices are hindered by siloed approaches and corresponding legacy systems. The result of this is that only specific individuals and groups, with particular skills and knowledge are able to process certain types of trade and elements of the trade process. For example, an exception handler in the FX options business could not take workload from the FX NDF (non-deliverable forward) workflow. 

An initial – and major – step is to separate ‘zero-touch’ trade flows (e.g. those that can be settled via CLS and other similar utilities) from ‘low-touch’ trade flows (those that require manual intervention). When exceptions, bottlenecks, and potential issues in ‘low-touch’ workflows are identified, many firms don’t have systems or the means to balance and reallocate workload and priorities in real-time to other qualified individuals and groups with capacity. Neither are they presented with sufficient and appropriate levels of detail regarding the issue/s and exceptions to be effective in their role. By virtue of a workflow that supports this type of dynamic balancing and granular detail, back-office operations staff become more fungible and are able to act dynamically to the unknown and unexpected. Institutions can also benefit from utilising cross-trained, multi-disciplined staff, capable of adapting to the ebb and flow of workload and work-type. The number of people involved in the process does not, therefore, need to increase linearly with projected increases in FX volumes. 

As a result of a flexible, dynamic workflow, and more timely and granular levels of detail, operations staff can be presented with clear information regarding the nature of an exception. Management provided with an accurate view of the changing dynamics can then take rapid decision to readdress the balance by simply assigning work to another qualified member of the team. 

We know the 80:20 rule applies to handling operational exceptions – 20% of the exceptions represent 80% of the cost to investigate and resolve...you can do the math.