London Foreign Exchange Joint Standing Committee Global Operational Managers Conference
Background
In September 2003, the New York Foreign Exchange Committee hosted the first global conference for operations managers. Attendees included market participants, members of the international sister foreign exchange committees, together with representatives from the various trade associations and infrastructure providers related to the FX market. At the end of this conference, it was agreed that the London Foreign Exchange Joint Standing Committee Operations Managers sub group would host the next conference in London in 2005.
Introduction
Oonagh O’Neill, Chair, London FX JSC Operations Managers Sub Group.
The Chair welcomed attendees to London and the conference. She began by outlining the 30 year history of the FX JSC and the role of the Operations sub group created in 2002; also, the structure of the FXJSC and its sub groups which were described with their key objectives.
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Conference JSC slide presentation (272k) |
Since the conference in 2002, the international, sister foreign exchange committees have been liaising and working more closely together. The need for global communication and coordination across operations in individual firms is reflected in the work of the various international FX committees, which also reflect the global nature of the FX markets. The work of operations areas globally continues to be important, especially in meeting the new challenges to support growing market initiatives such as prime brokerage and e commerce.
The two day event was structured to allow for presentations, panel discussions and question and answer sessions around the many challenges facing operations in the 21st century. Sessions on continuing challenges such as contingency, operational risk and the regulatory environment proved as interactive and relevant as the previous conference in 2003 and demonstrated that these areas continue to remain a priority for operations managers globally. However, sessions on developments in CLS, FX prime brokerage and e commerce proved to be especially pertinent and interactive as these have seen significant growth since the last conference. The growth in offshoring initiatives for many companies provided an excellent opportunity to share experiences and lessons learnt, while client panels proved insightful and relevant.
The Chair thanked the delegates for their contribution to the event especially for their proactive involvement in panel discussions. The work of the organising committee was also acknowledged and commitment from all attendees and the international committees to continue to work on a global basis was confirmed.
Opening Remarks
Andrew Bailey, Chief Cashier, Bank of England.
Mr Bailey outlined the history of the Bank of England and its
role in markets; also, the development of the foreign exchange
market and importance of the role of operational managers and
the increase in activity and development of infrastructure e.g.
CLS, to support the market.
Offshore Outsourcing – It’s a Reality
Panel chaired by Mike Neale, JP Morgan Chase
The panel comprised:
Mike Neale – JP Morgan Chase
Oonagh O’Neill – Morgan Stanley
Jean Moorhouse – FSA
Andy Mayer -HSBC
This session addressed the impact of offshore outsourcing for FX operations which has been increasingly topical in recent years. The session contained definitions and types of offshore outsourcing, a feasibility study and an example of an operation that has successfully been outsourced; it also covered contingency arrangements and a regulator’s view of the process.
After a brief introduction with a couple of definitions to differentiate offshoring from outsourcing, there followed a series of presentations to address a wide range of related topics and issues:
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Conference Offshore Introduction presentation (47k) |
Operations Offshoring: The Feasibility Stage (Andy Mayer, HSBC)
- Report on the importance of “managing the onshore impact” before starting any offshoring project; this should include the impact on staff and the need for a strong management team to implement offshoring.
- Selection of the appropriate function to migrate and identification of the most suitable location for the objectives and requirements of the operation e.g. a “centre of excellence”.
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Conference Offshore Feasibility Presentation (94k) |
Offshoring: Sydney, A Live Example (Oonagh O’Neill, Morgan Stanley)
- A ‘live’ offshore operation in Sydney was used to demonstrate a ‘two centre model’ and to describe why and how Sydney was selected as the offshore centre.
- The presentation highlighted the benefits of Sydney and the need to consider factors such as time zones and foreign language skills to be considered in planning an appropriate location.
- The operations support model and structure was described.
- The presentation included a description of the ‘reality’ of offshoring including the benefits and areas such as staff issues, business relationships and communications which require particular management attention and focus.
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Conference Offshoring Live Example Presentation (1433k) |
Offshoring: What it means for Business Continuity (Mike Neale, JPMorgan)
The panel concluded with a presentation on business continuity arrangements:
- Offshoring of operational functions will not be sanctioned without satisfactory business continuity arrangements in place.
- Also, the benefits of business continuity plans e.g. improved resiliency, meeting new regulatory requirements, developing the flexibility of the workforce and potential for reduction in expenditure.
- Also, the need to recognise very real challenges and issues. For example, cross training between locations, ability to sustain volumes of business while maintaining key controls, partnership and co operation between locations and supporting external clients.
Offshoring: From the Perspective of a Financial Regulator (Jean Moorhouse, FSA)
A very forthright presentation offering a regulator’s viewpoint on outsourcing and offshoring concluded this panel session:
- The presentation included a definition of offshoring and provided a list of ‘high level principles’.
- There was a reminder of the importance of undertaking comprehensive risk assessments and the obligations of firms.
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Conference Offshore FSA presentation (106k) |
Client Panel: ‘Where is the FX Market Going?’
Panel chaired by Barry Holland, Barclays Capital
The panel comprised:
Barry Holland – Barclays Bank
Tom Buschman – Shell Corp
Richard Pattinson – Barclays Capital
Jeremy Smith Zyen Limited
James van Den Heule – Barclays Capital
- The focus of this panel was to hear views from a range of clients on the current condition of the FX market and the future. Also, clients’ requirements from their brokers. This session included a lively exchange between the panel and the conference participants.
- The panel opened with a description of the significant rise in FX volumes across all major currency pairs in both the corporate and interbank sectors.
- Key sectors covered included the operations of corporates and FX services available to this client base; also, prime brokerage services, developments in e commerce and use by clients such as corporates including the impact of direct access to the FX market.
- The impact of regulations on the FX market and client behaviour was highlighted. Also, the heightened awareness of operational, liquidity and settlement risks. Sarbanes Oxley was mentioned in the context of the affirmation of processes and controls.
- Commercial demands asking for a shortening of settlement windows of T + 1 to T + 0 were raised. The need for real time information and CLS’ initiatives of multiple sessions and those of FX plus were highlighted.
- Zyen, a company which provides analysis of the FX market, covered not only the increase in volume but average cost per trade, which Zyen state as being $2.60 for interbank but $6.40 for corporate clients.
An open panel discussion covered market volatility the increasing use of both white labelled and grey labelled products. It was agreed that regulators will continue to apply pressure on the market to reduce systemic risk. The panel debated the need for corporate clients to be given incentives to invest in technology.
It was generally agreed by the conference that cost per trade will decrease as the market continues to invest in and implement more sophisticated technology and through outsourcing/relocation.
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Conference Client presentation (45k) |
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Conference Client ZYen presentation (176k) |
Updates from International Foreign Exchange Committees
Chaired by Oonagh O’Neill, Chair of the FX JSC Operations
sub group
The panel comprised of Representatives from the following committees:
ECB, New York, Canada, Singapore, Tokyo and London.
The visiting Secretaries/Chairs from the international sister FX committees provided an overview of their committees and the key objectives and initiatives being addressed currently by their committees.
Prime Brokerage: Risks and Challenges
Chaired by Susan Balogh, Goldman Sachs
The Panel comprised:
Susan Balogh – Goldman Sachs
David Frankel – Morgan Stanley
This session provided an overview of the FX prime brokerage
business concept, process flows and its evolution over the past
few years. It also outlined the risks associated with prime
brokerage summarised in the briefing document presented to the
main JSC last year on this subject. The panel also identified
the key challenges for operations providing support for this
business area.
The presentation can be broken down into three sections: an
overview discussion of the risks and challenges and an update
on current initiatives of FX prime brokerage.
The presentation started with an overview of the history and growth of FX prime brokerage; also, reasons for the growth, primary clients and the business model. A diagram was used as a visual aid to walk the audience through the trade flows followed by a brief discussion about the value proposition of the business.
The majority of the presentation focused on the risks and challenges faced by the different players in the market the prime broker, the executing bank and the client. Main points of interest were the notification process, give up agreements, dispute resolution and current global initiatives.
As many of these initiatives overlap internationally, it was suggested that the regional groups work together so that any potential best practices are implemented globally.
The session ended with a lively Q&A session; much of this focused on the roles and responsibilities of the individual players.
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Conference FXPB Presentation (78k) |
Operational Risk and Regulatory Environment
Chaired by Michael Douglas, Bank of America
The panel comprised:
Michael Douglas- Bank of America
Simon Hills – British Bankers Association
Damien Walsh - Bank of America
This session outlined the regulatory environment with Basel II and the FSA’s recent consultation paper dealing with its implementation in the UK. The second part of the presentation outlined the many challenges for managing risk in operations; it identified the key challenges facing operations on a daily basis, potential measurement of risk and other relevant issues with detailed descriptions in relation to the operational environment.
Measuring and Managing Operational Risk
The presentation focused on the operational impact of Basel II and the necessity to collate clear and concise detail using the relevant tools to support operations.
The presentation also highlighted the need for communication across individual operational groups but also globally. This will help with risk assessment across operations and ultimately across firms.
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Conference Ops Risk Presentation (317k) |
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Conference Ops Risk BBA presentation (129k) |
FX Joint Standing Committee Panel
Chaired by Paul Fisher, Chair, FXJSC
The panel comprised:
Paul Fisher – Bank of England
Gordon Wallace – Deutsche Bank
Jack Jeffrey – EBS
Ian Stevenson – WMBA
This session provided an opportunity for members of the main FXJSC to give an outline of developments in the FX market and the future. The panel also covered the impact of technology and role of brokers in the market.
CLS: Impact to date and future of CLS
Panel chaired by John Hagon, CLS Services
The panel comprised:
John Hagon – CLS Services
Frank Smith – Goldman Sachs
Barry McCarraher – HSBC
Paul Gleeson – Deutsche Bank
This session addressed the impact of CLS on the FX market and direction and challenges for the future.
The main theme of the panel’s discussion was the operational impact of CLS on FX settlements, the challenges facing CLS and opportunities for the future. Each participant gave their respective perspectives. It was acknowledged by all that CLS is now very much an integral part of the FX settlement process and that benefits have generally been realised by most participants. The types of benefit that were discussed by the panel included the obvious settlement risk reduction but also increased capacity, improved STP, improved matching, a reduction in the number of fails and a reduction in SWIFT costs relating to payments.
There were, however, concerns expressed by some about the cost of settling in CLS and the cost of correspondent banking services in relation to processing timed CLS payments. It was agreed that the challenge for CLS was to reduce unit costs without compromising its ability to grow the service and meet the demands placed on it with respect to operational resilience. In terms of participation in CLS, concern was expressed about the coverage of the buy-side customers and what could be done to bring more of them into CLS. It was agreed that this was something for the members of CLS to address, by bringing these customers into CLS as Third Parties of the CLS service, but that CLS itself should do as much as it can to help facilitate this.
There was discussion about CLS’ response to industry needs by expanding the service to incorporate a netting service for currently non-eligible currencies and a matching and settlement service for non deliverable forwards and option premiums. There was also discussion about whether CLS could play a role in the settlement of cash flows from interest rate swaps and credit default swaps. The discussion here focused on how the market place wanted to utilize and invest in multiple service providers and settlement mechanisms and where the CLS service fits within this framework to be able to deliver the potential benefits of “single-pipe” processing.
The panel then expanded the discussion to look from a blue sky perspective as to whether there could be even more consolidation in the industry and the utilities in order to provide a single entity that could handle all payments and receipts for the market. There was no consensus on this subject.
In conclusion, it was agreed that CLS has become a tremendous success in terms of the quality and robustness of the settlement service it now provides but that there are challenges facing it going forward in terms of driving down costs and opportunities for expansion of the services it provides to meet the growth and development of the FX market.
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Conference CLS Presentation (245k) |
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Conference CLS impact presentation (221k) |
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Conference CLS future presentation (711k) |
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Conference CLS GS view presentation (1,112k) |
The Impact of E-Commerce on Operations
Panel chaired by Leigh Meyer, Citigroup
The panel comprised:
Leigh Meyer – Citigroup
Michael Paulis – Citigroup
James Dalton – Citigroup
James Sinclair – EBS
Barry Holland – Barclays Capital
Phil Smith – Foreign & Colonial
This session addressed the growth in e commerce in the FX market. A general definition and outline of the impact on the market was presented, including the future growth of e-commerce and the specific impact on operations.
James Dalton, a member of the e commerce marketing team at Citigroup presented an operations perspective on the impact of e commerce with the aim of linking the development and functionality of electronic platforms with running ‘live’ operations. He also outlined the diversity of platforms and functionality available currently in the market.
The distinction between passive and active participants in the market was also highlighted. For the active market participant, the role of the liquidity aggregator was noted in particular. Emphasis on the similarities and benefits of e commerce for all market participants became increasingly evident and the opportunities for improving straight through processing (STP) and reducing operational risk. While recognising the advantages of STP for operations groups, the consequence of e commerce solutions developing without proper integration with operations goals and objectives was highlighted. A suggested solution to this risk was the benefit of close interaction between e commerce and operations groups.
In addition, the presentation noted two other themes:
The increasing use of e commerce platforms to reduce the instances of discrepancies between counterparts. As a result, there is greater emphasis on the suppliers of both “whitelabel” and branded solutions to offer value added services within the e commerce platform, this includes potential for improved MIS, portfolio valuations and audit tools.
The potential for development costs in this market to spiral is very clear and real value-adding solutions should be carefully analysed and implemented.
A panel discussion followed the presentation. It represented a broad spectrum of users within the FX world as well as providers of e commerce solutions. Phil Smith from Foreign & Colonial Investment Management represented the buy side, balanced by Michael Paulus from the Investor Sales desk of Citigroup, James Sinclair from EBS provided a vendor perspective and Barry Holland’s broad operational experience within the FX market completed the panel with a balance of experience.
The question and answer session revealed the wide interest in this subject and questions ranged from requests for very specific opinions to generic views on the progress and development of products and solutions. The buy-side interest focused on the strategic direction of the market while operations considerations probed solutions around improved recognition of operations requirements and risk mitigation. The potential for this topic to appear on further conference agenda’s is evident, its growth multiplier not yet fully defined.
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Conference E Commerce presentation (61k) |
Contingency Planning: ‘Are you Prepared –
Exercising your Top Team’
Chaired by Derrick Pearson, LloydsTSB
The panel comprised:
Derrick Pearson – Lloyds TSB
Simon Banks – LloydsTSB
Allen Drew – LloydsTSB
Simon Langdon – Insight Consultancy
Simon Finch – Freelance Film- Makers
Gabriel Range – Freelance Filmmakers
John Trundle – Bank of England
This was an interactive exercise facilitated by an external consultancy group. The group outlined its experience of contingency planning with a number of city institutions, and addressed the level of preparedness and the many lessons learned (to date) in this key area. It also addressed the impact of communications in the event of a contingency being invoked.
The first session covered “putting your business back into business continuity” and how exercises can act as the catalyst to raise awareness with senior management, identification of issues that need addressing and training those that need to implement the plan. Ultimately, ‘exercising of your top team’ should prove the businesses ability to recover and respond to a range of disaster scenarios, including a scenario affecting people, infrastructure or business, or any combination of these.
The second session was presented by insight consulting. They have extensive experience and best practice, providing a fresh ‘voice’ that managers within an institution will listen to, providing a benchmark with other organisations and industries, and giving all the participants of an exercise confidence that you are addressing the subject professionally and without omitting any fundamental issues. It is vital that a firm’s executive teams know what they will have to do in the event of a crisis or incident, that their responsibilities are clearly defined, and that they feel accountable. Again, extending the awareness theme, exercising you ‘top team’ offered a great opportunity to build ‘muscle memory’ so that people know (instinctively) what to do in a crisis. It was suggested that recovery plans should be kept simple, as complication only creates confusion at a time when clarity and calmness is a valuable commodity.
Borough Films, filmakers who share a strong reputation for producing ground-breaking drama and quality documentaries made a brief presentation.
Their broadcast work focuses on how government, emergency services, business and the media deal with disasters. They offer business continuity experts with the chance to have more authentic simulation exercises and specialise in the development of detailed scenarios designed to test corporate and government contingency measures and the creation of video material to bring such exercises ‘to life’. They are most famous for producing films such as ‘the Day Britain Stopped’ and ‘the Man Who Broke Barings’.
The final part of the presentation was by the Bank of England on the co-ordination between the authorities and market. The Bank explained their role in the Tripartite Authorities (Bank of England, FSA and HM Treasury) and also described some of the recent initiatives and topical issues for the market, highlighting the importance of the market working as one body in a contingency situation.
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Conference Contingency Insight presentation (727k) |
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Conference Contingency LloydsTSB presentation (127k) |
Review of Conference and Conclusions
Chaired by Oonagh O’Neill, Chair, FX JSC Operations sub
group
The panel comprised:
Oonagh O’Neill, -Morgan Stanley
Mike Neale - JPMorganChase
Barry Holland - Barclays Capital
Susan Balogh - Goldman Sachs
Michael Douglas - Bank of America
John Hagon, - CLS Services
Leigh Meyer, - Citigroup
Derrick Pearson - LloydsTSB
This session reviewed the two day conference with each session facilitator giving a brief summary of the individual sessions.
