3 real-lfe lessons from the market on intraday liquidity and gross FX settlement.

Things are moving! There are new rules coming into effect on Jan 1 2015 about measuring intraday liquidity and on settlement risk for FX trades that settle gross. Several conversations with industry friends over the last two weeks have revealed what banks and regulators are thinking. Comments on the following would be very welcome.

This is the fourteenth in a series of posts on how banks and FI’s might adapt. The previous posts are available on the 3C Advisory website, click here.

Observation #1: Measuring intra-day credit taken will be a slow burn

Zurich, Switzerland. Coffee with one of my industry friends, a senior treasury / ALM guy who is very plugged in to the Swiss banking community;  very involved with the other large banks, the regulators and the SNB.

He shares with me the approach that FINMA will take on BCBS directive 248, regarding intraday credit taken. Things will not move as quickly as planned by the Swiss and they will not be in place by Jan 1 2015.

At a gathering of 20 or so of the largest banks, FINMA had announced, with all the planning and punctuality that the Swiss reserve for a train timetable, that trial intra-day reporting would start this coming September for the largest five banks. “Vot iz intra-day?” asked one of the five representatives. Now granted, he was from Bern, where things move really slowly, but FINMA had an OMG moment. The timetable was scrapped and FINMA has despatched some junior oils to the bank where my friend works to ensure they understand things intraday properly and can then work with the banks to obey the rules.

BCBS guidance can be found at: http://www.bis.org/publ/bcbs248.htm

Observation #2: The regulators have a cunning plan around FX settlement risk 

London, England. Coffee not far Bank Station with someday from the Bank. We noodle on matters LCR and NSFR and the correct treatment for FX trades, a topic where it has so far proved  impossible to find two people with the same view. We move to the topic of the requirement to treat FX trades that settle outside CLS, or non-PvP to use the neutral expression, as open in terms of credit risk until the receipt of funds is reconciled.

I comment that this is a really tough nut to crack for the banks because fundamentally their reconciliation machinery is geared to end of day batch, so at best sometime on T+3 they can work out that an expected receipt has indeed been received. I comment that measuring this and then integrating this into the risk systems is something that I would class as very hard work and requiring a new operating model. “Yep, we know that.” he replied. When I commented that there would be more than a few folk who would not be up to standard. “Yep, we know that and we are looking forward to testing them.” He smiled and winked.

BCBS guidance can be found at: http://www.bis.org/publ/bcbs229.pdfhttp://www.bis.org/publ/bcbs229.pdf

Observation #3: I have found a bank getting ready to control intra-day liquidity

Cannon Street, London. A chance encounter with an old friend from the SWIFT team of a bank with nearby offices. Tells me is doing some extensive work on matters intra-day. “Right up your street,” he tells me, “things you write about!”.

This bank is busy putting in new capabilities to collect intra-day messages via SWIFT, working with their Nostro banks to get them and building the capability to collect up an intra-day view of the ledger postings that normally get sent to their matching tool, SmartStream’s TLM, in the end of day batch.

Lessons Learned: Marvellous. Signs of life. Interestingly the bank that is moving is not using the industry tankard TLM software they use for end of day recs. No surprise.

The regulators have a cunning plan. They know how hard it will be to correctly monitor credit exposure. Sounds like they are polishing their canes and getting ready to get truculent banks six of the best. No surprise.

The approach from the regulators will vary. The Brits look they are going to be tougher and act sooner. The Swiss look like being a little more forgiving. No surprise.

A personal request: Finally. I have ventured into self-publishing. The not so creatively titled, but practical guide: “Cash & Liquidity Management: Mastering the Challenges of New Regulations and a Changing Marketplace” is now available in print and on Kindle. All the bits form the Blog are there, together with a lot of detail on current challenges. Many of those challenges will take effect on Jan 1 2015. Time to be well informed! As too is the book on more general operations issues.

Book #1: The Bankers’ Plumber’s Handbook

How to do Operations in an Investment Bank, or Not! Includes all the Blog Posts, with the benefit of context and detailed explanations of the issues. True stories about where things go wrong in the world of banking. Available in hard copy only.

Book #2: Cash & Liquidity Management

An up to date view of the latest issues and how BCBS guidance that comes into force from Jan 1 2015 will affect this area of banking. Kindle and hard copy.

Hard Copy via Create Space: Click here

Amazon UK: Click here

Amazon US: Click Here

Thanks for your support and thanks to the numerous contributors.


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