FX AND THE HOLY GRAIL
On-line foreign-exchange trading gets closer to what treasury departments have been searching for.
By Janet Kersnar

What will it take for on-line currency marketplaces to win the hearts of corporate foreign-exchange managers? The answer lies in three letters: STP. "It's the latest buzzword," says Robert Iati, research director of TowerGroup, a financial services consultancy. "Everybody's marketing material has to have some mention of STP," he says.

Straight-through processing, or STP, is the streamlining and automation of an entire trade cycle. As soon as a trade request is made, there's no manual intervention gone is the to and fro of phone calls and faxes which also leaves no room for human error.

Sounds too good to be true? In many ways, it is. No provider has bona fide STP yet. From Currenex's FXtrades and State Street's FX Connect to Atriax, FXAll and SunGard STN Treasury, "all the portals are offering elements of STP, but not the entire thing," says Iati.

It's a big reason why few forex managers have felt compelled to abandon their phones to start trading on-line. TowerGroup says only around 10 percent of all dealer-to-customer currency trades are done through electronic systems today. To boost business, the name of the game for the portals is even more automation and integration.

Granted, it won't be easy. STP is a huge initiative that involves every part of the forex business and requires building interfaces for everything from the corporate side including treasury management systems to the banking side such as pricing engines. What's more, different forex platforms, banks and software providers are all using different standards and interfaces.

Survival Guide

But treasurers and their forex teams shouldn't despair. "Each little step towards STP will bring cost benefits," says Damon Kovelsky, analyst with financial advisory Meridien Research. Most recently, he says, "the portals have done a lot of nice work in streamlining the middle and back offices." And there's more to come. Arnold Salverda, group treasurer of Sara Lee DE, the US$5.2 billion Netherlands subsidiary of the US consumer goods giant, is currently part of a pilot project run by Currenex. The aim is to improve how internal forex trade requests are collected and managed.

A newcomer to on-line forex trading, Sara Lee began using FXtrades in early 2001. "Getting pricing from multiple banks simultaneously is a concept we like," says Salverda. With two other regional treasury centers in Curacao and Singapore, and some 10,000 internal and external trades worth around US$5.3 billion in fiscal 2001, it's easy to see why. As for STP, Salverda explains that Currenex has automated several important parts of forex trade, such as confirmations.

The idea now is to push automation even further through the front, middle and back offices by interfacing with Sara Lee's treasury management system. A main goal is to automate the settlement of trades. Doing so, says Bert Kors, Sara Lee's forex manager, will speed up internal trading at the subsidiary "by letting us cut down the number of steps we have to go through to balance off our forex." Kors and his team won't need to fill out trade tickets manually any more, as the information will be generated and stored in both FXtrades and its treasury management system.

In November, US conglomerate General Electric (GE) signed on with Atriax, using a version of its dealing engine that's fully integrated with FXpress, GE's forex risk-management system. David Rusate, deputy treasurer of foreign exchange at GE, which handles US$80 billion of forex a year, explains that now GE's forex managers don't have to log on to Atriax every time they need to do a trade. Everything is taken care of from within the FXpress workstation.

For example, if managers at any of GE's subsidiaries want to make a trade request to central treasury in Connecticut, they simply tell FXpress what the currency exposure is. FXpress goes through the new interface to communicate that exposure to Atriax, which then solicits prices for the trade from a list of pre-defined banks. "We only have to click on the winning price, and the trade is done, in four seconds," enthuses Rusate.

Small steps, to be sure. But they're enough to give e-forex customers reason for hope. "We're happy with the way this is developing," says Sara Lee's Salverda. "Simultaneous quoting from multiple banks and STP, what more can you ask for?".

Janet Kersnar is editor-in-chief of CFO Europe, CFO Asia's sister publication based in London.