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CRPTSYMGMT > Topic 7: Systems & Governance > Flashcards

Topic 7: Systems & Governance Flashcards

1
Q

Creating TSY policy

* Describe limits for Currency & Rates (5), Funding (6)

A

Currency & Rates

  1. Balances per currency
  2. Tenor
  3. Hedging profile
  4. VaR
  5. Instruments Used

Funding

  1. Maturity
  2. Max tenor
  3. Annual refinancing
  4. Markets / countries
  5. Gearing
  6. Rating agency triggers
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2
Q

Creating TSY policy

* Describe limits for Investments (4), Credit (5)

A

Investments

  1. Tenor
  2. Instrument max
  3. % of market size
  4. What type of instruments

Credit

  1. Exposure per counterparty
  2. Exposure per country
  3. Tenor per counterparty
  4. Concentration limit
  5. Type of instrument
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3
Q

Controls

  • Style
  • Why
A
  • Style -
  • Preventative vs detective
  • Why
  • Minimise risk of error
  • Minimise likelihood of fraud
  • Minimise chance of unathorised activity
  • Ensure compliance with policy and expected risk outcome
  • Ensure clarity in roles and responsibilities
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4
Q

List Organisational controls (8)

A
  1. Full segregation of duties
  2. Trained back up for key staff
  3. Independent oversight (senior mgmt, middle office, audit)
  4. Forced annual leave
  5. Experienced staff
  6. Remuneration based on role and experience
  7. Ongoing training
  8. List of authorised dealers
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5
Q

Operational Controls (8)

A

Operational COntrols

  1. Documented policy, limits and authorities
  2. Detailed procedures & processes
  3. Fully operational business continuity process
  4. Adequate systems for exposure
  5. Phone calls recorded
  6. Straight through processing
  7. SSIs and dealmatching in real time
  8. Physical security (eg pass card)
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6
Q
  • Describe Treasury Policy (2)

* Key Inclusions (10)

A
  • Describe Treasury Policy
    1. Sets guidelines to drive daily activities and risk appetite
    2. Approved by Board, endorsed on annual basis (living doc)
  • Key Inclusions
    1. Risk mgmt philosophy & objectives
    2. Risk exposures & tolerance
    3. Approved instruments
    4. Roles & responsibilities
    5. Limits
    6. Credit framework (may be sep doc)
    7. Oversight / breach framework
    8. Reporting requirements
    9. Benchmarking
    10. Approved markets
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7
Q

Current large scale recent scandals (3)

A
  1. LIBOR rate rigging
  2. BBSW rigging
  3. FX rate fixing
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8
Q 
Impacts from external environment
LIBOR fixing (background - 6)
A

LIBOR fixing (background - 6)

  1. Major b/m for lending & swaps, underpins USD 350tn in derivs
  2. Major banks admitted manipulating rates betw 2005 / 2010
  3. One banker claimed went on since 1991
  4. Multiple investigations (US, Canada, UK, Swiss)
  5. UK Serious Fraud Office
  6. Every bp move, a couple of million profit
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9
Q

Impacts from external environment

BBSW rate rigging (6)

A
  1. A$350bn in loans & bonds priced off BBSW plus IRS & CCFX
  2. 2013, UBS voluntarily disclosed to ASIC
  3. BNP SIngapore, 2007 to 2010 expressed preferences on direction / level of rate submissions
  4. Process to calc BBSW changed late 2012
  5. ASIC considered market impact insignificant initially, penalties totalled A$3.6m. Now has reconsidered impact
  6. ASIC investigation ongoing - banks “defensive & legalistic”
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10
Q

Impacts of external environment

FX Daily Rate Fixing

A

Impacts from External Environment
FX daily rate fixing
1. June 2013 but prob was going on for a decade
2. Regulators in Asia, Switzerland, UK, Europe, US
3. 4 banks control over 50% of currencies traded
4. Banks accused of
- rigging daily FX fixings
- Front running customers orders
- Sharing info on open positions

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11
Q

Impacts of External environment

- What can Treasurer do re rate fixings?

A
  1. Watch pricing / exposures landing on a common date / time

2. Avoid 4pm rate fix, avoid too many rate sets on same day…

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12
Q

Treasury Reporting (7)

A

Treasury Reporting (7)

  1. What to report, to who, how often
  2. Establish data source
  3. Who should prepare
  4. 3 aspects: governance / performance / communication
  5. Market commentary should be done by front office, but all governance / performance prepared by independent party (middle office)
  6. Level of detail decreases with seniority of recipient
  7. Full detail vs exception based?
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13
Q

Treasury Reporting - FUnding updates (10)

A

Treasury Reporting - FUnding updates (10)

  1. Capital markets update
  2. BOrrowing capacity
  3. Maturity profile
  4. RE-financing profile
  5. Cost of funds
  6. Liquidity forecast
  7. Borrowing requirements
  8. Activity against borrowing mandates
  9. Exposure against rating metrics
  10. Exposure against internal metrics
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14
Q

Measuring Treasury Performance (10)

A
  1. # bank accounts, Overnight Cash balance, trapped cash
  2. CF accuracy, achieved rate (interest & FX)
  3. Return on funds invested
  4. Credit margin on bond issuance, average credit spread on CP balance
  5. Mix fixed / floating exposure
  6. Average maturity / duration
  7. Spread of business
  8. Failed payments, deal input error, limit breaches
  9. Hedge effectiveness
  10. Credit rating
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15
Q

Treasury Systems (3)

A
  1. Stand alone or Excel or outsource (depends on size/complexity)
  2. Can be integrated into bank platforms, market data systems, confirmation systems & accounting
  3. Provide audit trail, workflows
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16
Q

What do Treasury Systems DO? (10)

A
  1. Bank statement
  2. Bank reconciliation
  3. CF forecast
  4. Deal recording
  5. Deal confirmation
  6. Electronic matching
  7. Payments
  8. Exposure against limits
  9. Reporting
  10. Accounting
17
Q

Business Continuity Protocol

A
  1. Protect against market disruption, business disruption, general disruption
  2. Detailed disaster recovery protocol
  3. Well documented, understood, tested regularly.
  4. Detailed plan should enable days business critical activities to occur
18
Q

Information / dealing platforms

A
  1. Impt to have market feeds (not cheap)
  2. market pricing transparency
  3. deal execution capability / STP (general comms, deal pricing, trade valuation, deal blotter, order placement, deal quoting)
  4. monitor market info & news
  5. data interfaces into TSY & accounting systems

CRPTSYMGMT (9 decks)

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