The e-Forex Case Study
Bunzl
Bunzl is a FTSE 100 UK company with operations spanning the Americas, Europe and Australasia. The company has partnered with both customers and suppliers in providing outsourcing solutions and service oriented distribution. It supplies a broad range of internationally sourced products that are everyday essentials for its' customers to operate their businesses.
Bunzl's revenue in 2008 was £4.2bn with operating profit of £245m. The company has around 13,000 employees worldwide and operates a centralised treasury department which acts as an in-house bank and is comprised of four people. The department carries out transaction hedging on behalf of subsidiaries and generally manages the foreign exchange and banking relationships of the Group.
e-Forex talks to John Chamberlain, Treasury Manager in their treasury department
John, what was your motivation for e-Trading?
We trade over 1,500 FX deals per annum, the majority of which are smaller transaction hedging deals. Our reason for adopting e-trading was therefore predominantly to increase efficiency whilst still benefiting from competitive pricing. We have now linked 360T TEX® multi-bank platform to our treasury management system IT2, so that all FX deals (as well as automatically created back-to-back internal deals with our subsidiaries) are uploaded into IT2 without the need for any data input. IT2 is then linked to Misys to confirm the deals. This Straight-Through-Processing (STP) system has increased efficiency in the dealing process as well as eliminating the potential for data-input errors.
The cost savings generated through competitive pricing was a secondary motivation for e-Trading but has proved to be a benefit nonetheless. Furthermore, a full audit trail of each transaction offers us greater transparency in the performance of our bank partners.
Why did your treasury unit decide to use 360T?
We were initially unsure as to which platform to use and so the opportunity to use 360T without paying any fees meant that we could make sure that we were satisfied with the system before we were fully committed. 360T covers all of the functionality which we require from an e-Trading platform and therefore met our expectations.
Can you give us a brief description of a typical trade lifecycle (including subsidiary requests)?
A subsidiary requests a deal by emailing a spreadsheet to the treasury email inbox. This spreadsheet contains a macro which prints out a deal slip and allows the deal to be imported into 360T without the need for any data entry. The deal is then imported into 360T, and manually checked and dealt by competing a number of banks on price. The deal is then imported into IT2 where a back-to-back deal with the subsidiary is automatically generated with a margin being charged. Finally, the deal is imported directly from IT2 into the Misys confirmation matching system where the bank counterparty also uploads a confirmation to which it is matched.
How was the integration project for TEX® handled by 360T? Was it in time and budget?
The installation of TEX® was reasonably simple and swift. The integration process of TEX® with IT2 took a little longer due to the complexity of importing deals and creating back-to-back deals which led to the need for bespoke programs to be written. This completes the STP process.
What do you see as the key benefits that e-trading has brought to your treasury unit?
The key benefit for us is the increased efficiency due to STP which an electronic platform provides. Reducing time-consuming manual processes such as checking prices with several banks on the telephone, deal inputting, manual confirmation matching, audit trail etc. gives us now more time to focus on value-added tasks in treasury. Other benefits including greater price transparency, error reduction and performance analysis of banks have all contributed to a successful venture into e-Trading for Bunzl treasury.
What instruments do you commonly trade?
We use the TEX platform to trade our vanilla FX products – i.e. FX Spots, Forwards and Swaps.
What percentage of your overall treasury requirements are traded electronically vs. manually?
We trade around 75% of our FX deals via 360T. We still prefer to trade the larger deal sizes via the telephone as we believe the personal contact with a bank dealer is still important in these instances.
Has e-trading had any effect on the relationship with your banks?
Yes, there have been two main effects. Firstly, this has reduced the level of day-to-day telephone contact that we have with our banks and so we have had to make sure that we continue to maintain strong relationships with them. We were conscious of this pit-fall of e-trading from the start and so took steps to avoid it. Secondly, this has impacted the volume of deals transacted with those banks that do not provide immediate automatic pricing on 360T or have 360T at all.
Do you think that e-trading is a "must-have" for corporate treasuries?
I think it depends on the size of the treasury operation and the number of transactions it has to manage. For those treasury operations dealing in a high number of vanilla FX and MM transactions it can be an extremely useful tool and can save both time and money.
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