CHAPTER ICHAPTER I
An OverviewAn Overview
Back officeBack office
 Is usually located behind the trading room,Is usually located behind the trading room,
but the wo...
Need to make back office efficiencyNeed to make back office efficiency
 Increasing regulation and complianceIncreasing re...
 Treasury operations has grown into one ofTreasury operations has grown into one of
the key administrative areas of finan...
 An important development in the backAn important development in the back
office has been the advent of straightoffice ha...
Flexible ControlFlexible Control
 A key concept for the head of a treasuryA key concept for the head of a treasury
operat...
Two perspectivesTwo perspectives
 First is summed upFirst is summed up
saying, the bottomsaying, the bottom
line is that ...
Two Obvious PrioritiesTwo Obvious Priorities
 Good on- going control ofGood on- going control of
payments authorization,p...
Cash ReconciliationCash Reconciliation
 Is another function where the head of theIs another function where the head of th...
Introducing the Core FunctionsIntroducing the Core Functions
The mainstream role of the back office isThe mainstream role ...
Input and CompletionInput and Completion
 The first core function for the back office isThe first core function for the b...
Verification by ConfirmationVerification by Confirmation
Provided the input is accurate , the tradersProvided the input is...
The second core function for the processingThe second core function for the processing
support unit is to verify the ideal...
SettlementSettlement
 The third core function in the processing chain isThe third core function in the processing chain i...
ReconciliationReconciliation
 Operations areas are typically involved in aOperations areas are typically involved in a
nu...
In summary, the core functions ofIn summary, the core functions of
the back office are:the back office are:
 Input (where...
The Back Office can alsoThe Back Office can also
includeinclude
Risk ManagementRisk Management
 This function can sit well in the back officeThis function can sit well in the back offic...
Treasury accountingTreasury accounting
 This unit acts as an intermediary betweenThis unit acts as an intermediary betwee...
DocumentationDocumentation
 This can range from simple customer mandatesThis can range from simple customer mandates
thro...
Financials, analysis, budgets,Financials, analysis, budgets,
regulatory reportingregulatory reporting
 Depending on the s...
Systems and TelecommunicationsSystems and Telecommunications
 This is possibly the most problematical area forThis is pos...
Systems and telecommunications
Regulatory reporting
Financials,analysis, budgets
Documentation
Treasury accounting
Risk ma...
ResourcesResources
 Traditionally, traders were regarded asTraditionally, traders were regarded as
highly specialized sta...
DateDate NameName CauseCause LessonLesson
19741974
BankhausBankhaus
Herstaff,Herstaff,
CologneCologne
Losses inLosses in
f...
Upcoming SlideShare
Loading in …5
×

Eda & chris report

204 views

Published on

report in elective II

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
204
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
2
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Eda & chris report

  1. 1. CHAPTER ICHAPTER I An OverviewAn Overview
  2. 2. Back officeBack office  Is usually located behind the trading room,Is usually located behind the trading room, but the work that is performed there hasbut the work that is performed there has changed considerably, evolving farchanged considerably, evolving far beyond just processing into a totalbeyond just processing into a total support role for the dealing functions.support role for the dealing functions.
  3. 3. Need to make back office efficiencyNeed to make back office efficiency  Increasing regulation and complianceIncreasing regulation and compliance requirements, risk management needsrequirements, risk management needs and interactive system development.and interactive system development.
  4. 4.  Treasury operations has grown into one ofTreasury operations has grown into one of the key administrative areas of financialthe key administrative areas of financial institution, responsible for the processinginstitution, responsible for the processing of all financial market transactions andof all financial market transactions and usually much more, including a crucial roleusually much more, including a crucial role in the control of risk.in the control of risk.  Modern international banks have a largeModern international banks have a large daily turnover in numerous currenciesdaily turnover in numerous currencies from treasury transactions which result infrom treasury transactions which result in high value payment and receiptsin manyhigh value payment and receiptsin many centers.centers.
  5. 5.  An important development in the backAn important development in the back office has been the advent of straightoffice has been the advent of straight through processing (STP) also calledthrough processing (STP) also called hands- off or exception processing. Thishands- off or exception processing. This has been mad possible through systemhas been mad possible through system advances of real time on line input in theadvances of real time on line input in the trading room, which in turn has mean thattrading room, which in turn has mean that the back office can recall deals input in thethe back office can recall deals input in the trading room to verify from an externaltrading room to verify from an external source.source.
  6. 6. Flexible ControlFlexible Control  A key concept for the head of a treasuryA key concept for the head of a treasury operations unit.operations unit.
  7. 7. Two perspectivesTwo perspectives  First is summed upFirst is summed up saying, the bottomsaying, the bottom line is that the bankline is that the bank has to do businesshas to do business otherwise it is out ofotherwise it is out of businessbusiness  Second perspectiveSecond perspective on flexible control ison flexible control is making sure that themaking sure that the right amount ofright amount of attention andattention and response is given inresponse is given in proportion to what isproportion to what is really required.really required.
  8. 8. Two Obvious PrioritiesTwo Obvious Priorities  Good on- going control ofGood on- going control of payments authorization,payments authorization, ensuring prompt follow up toensuring prompt follow up to confirmation and reconciliationconfirmation and reconciliation exceptions.exceptions.  Efficient housekeeping for theEfficient housekeeping for the standing data tables in thestanding data tables in the database of the variousdatabase of the various systems, which may be in usesystems, which may be in use in any given bank. Anin any given bank. An important accounting relatedimportant accounting related priority is the protection of thepriority is the protection of the integrity of the systems in useintegrity of the systems in use by making sure that staff reportby making sure that staff report systems problems through asystems problems through a normal procedure to thenormal procedure to the support unit via treasurysupport unit via treasury operations line management.operations line management.
  9. 9. Cash ReconciliationCash Reconciliation  Is another function where the head of theIs another function where the head of the back office just keep the tightest control.back office just keep the tightest control.  Modern Technology may have removedModern Technology may have removed the input and routine checking of servicethe input and routine checking of service and reduction in costs, but this has beenand reduction in costs, but this has been more than offset by increased complexitymore than offset by increased complexity in day-to-day operation.in day-to-day operation.
  10. 10. Introducing the Core FunctionsIntroducing the Core Functions The mainstream role of the back office isThe mainstream role of the back office is in direct support of the trading room orin direct support of the trading room or front office. Traditionally this included thefront office. Traditionally this included the input of deals written and authorized byinput of deals written and authorized by traders, checking of input, verification bytraders, checking of input, verification by confirmation, settlement and reconciliationconfirmation, settlement and reconciliation of nostro accounts as soon as possible.of nostro accounts as soon as possible.
  11. 11. Input and CompletionInput and Completion  The first core function for the back office isThe first core function for the back office is to recall the deal through the input systemto recall the deal through the input system and decide what has to be done toand decide what has to be done to complete the details of the deal.complete the details of the deal.
  12. 12. Verification by ConfirmationVerification by Confirmation Provided the input is accurate , the tradersProvided the input is accurate , the traders immediately benefit from online positionsimmediately benefit from online positions and maturity ladders. This is furtherand maturity ladders. This is further enhanced by the facility toenhanced by the facility to manipulate/interpolate the outstandingmanipulate/interpolate the outstanding book with many charting an analyticalbook with many charting an analytical tools.tools.
  13. 13. The second core function for the processingThe second core function for the processing support unit is to verify the ideal from an externalsupport unit is to verify the ideal from an external source as soon as possible after the transactionsource as soon as possible after the transaction has been done. For bank-to-bank trading, thehas been done. For bank-to-bank trading, the verification can take the form of a confirmation ofverification can take the form of a confirmation of a deal done through the Reuters 2000 or EBSa deal done through the Reuters 2000 or EBS trading systems, or a broker’s confirmation viatrading systems, or a broker’s confirmation via Barts 3if the deal has been done through aBarts 3if the deal has been done through a broker. It can also be a confirmation from thebroker. It can also be a confirmation from the counterparty, normally via SWIFT, which will becounterparty, normally via SWIFT, which will be matched automatically using Accord or a similarmatched automatically using Accord or a similar inhouse3 matching system such as TRAMinhouse3 matching system such as TRAM (transaction matching system).(transaction matching system).
  14. 14. SettlementSettlement  The third core function in the processing chain isThe third core function in the processing chain is that of settlement. This can take the form of athat of settlement. This can take the form of a clean currency payment/receipt at the banksclean currency payment/receipt at the banks agency accounts.agency accounts.  The initiating bank, accounting entries andThe initiating bank, accounting entries and reporting are created from the one commonreporting are created from the one common events file. An important corollary to theevents file. An important corollary to the payment process is that the deal may be onepayment process is that the deal may be one included in a netting arrangement with theincluded in a netting arrangement with the counterparty.counterparty.
  15. 15. ReconciliationReconciliation  Operations areas are typically involved in aOperations areas are typically involved in a number of reconciliation processes including thenumber of reconciliation processes including the agreement of trader’s overnight positions,agreement of trader’s overnight positions, nostro accounts and brokerage.nostro accounts and brokerage.  The basic reconciliation function is to agree orThe basic reconciliation function is to agree or reconcile the entries that have passed over anreconcile the entries that have passed over an account with an agent bank against those thataccount with an agent bank against those that have been passed internally in the books of thehave been passed internally in the books of the bank to a nostro account. (The word ‘nostro’bank to a nostro account. (The word ‘nostro’ simply means’ our account with them’)simply means’ our account with them’)
  16. 16. In summary, the core functions ofIn summary, the core functions of the back office are:the back office are:  Input (where necessary) and completion ofInput (where necessary) and completion of details of deal;details of deal;  Verification of deal by both inward and outwardVerification of deal by both inward and outward confirmations;confirmations;  Settlement of the deal depending on the eventSettlement of the deal depending on the event which may also include netting;which may also include netting;  Reconciliation of nostros, positions, books.Reconciliation of nostros, positions, books. These functions are vital to the ongoing viability ofThese functions are vital to the ongoing viability of the bank.the bank.
  17. 17. The Back Office can alsoThe Back Office can also includeinclude
  18. 18. Risk ManagementRisk Management  This function can sit well in the back officeThis function can sit well in the back office if staffed by officers specifically ex-marketif staffed by officers specifically ex-market practitioners.practitioners.  It can range from agreeing overnight cashIt can range from agreeing overnight cash positions for the trading room through topositions for the trading room through to full-risk modeling associated withfull-risk modeling associated with derivatives trading and hedging.derivatives trading and hedging.
  19. 19. Treasury accountingTreasury accounting  This unit acts as an intermediary betweenThis unit acts as an intermediary between the treasury business unit and the financethe treasury business unit and the finance department to ensure that the accountingdepartment to ensure that the accounting of treasury products is accurate andof treasury products is accurate and correct.correct.
  20. 20. DocumentationDocumentation  This can range from simple customer mandatesThis can range from simple customer mandates through to full legal documentation with boththrough to full legal documentation with both banks and customers.banks and customers.  Originally this area can be viewed in similar wayOriginally this area can be viewed in similar way to the accounting function. If documentationto the accounting function. If documentation forms part of the back office then the businessforms part of the back office then the business will be more understood by management andwill be more understood by management and better controlled as a result.better controlled as a result.
  21. 21. Financials, analysis, budgets,Financials, analysis, budgets, regulatory reportingregulatory reporting  Depending on the size of the business unit, aDepending on the size of the business unit, a small financial section allows the treasurysmall financial section allows the treasury business head to have a hands-on role for allbusiness head to have a hands-on role for all financial aspects of the business.financial aspects of the business.  In an ideal world, the suite of reports required byIn an ideal world, the suite of reports required by the regulators would be entirely systemthe regulators would be entirely system generated and require no intervention.generated and require no intervention.
  22. 22. Systems and TelecommunicationsSystems and Telecommunications  This is possibly the most problematical area forThis is possibly the most problematical area for the treasury back office.the treasury back office.  Although rapid technological change andAlthough rapid technological change and straight-through processing have cut throughstraight-through processing have cut through traditional boundaries of responsibility, it is stilltraditional boundaries of responsibility, it is still necessary for one area to be accountable for thenecessary for one area to be accountable for the total system requirements for a treasury unit tototal system requirements for a treasury unit to function efficiently and indeed to avoid chaos onfunction efficiently and indeed to avoid chaos on the network or switching system supportingthe network or switching system supporting traderstraders
  23. 23. Systems and telecommunications Regulatory reporting Financials,analysis, budgets Documentation Treasury accounting Risk management 1. Input and completion 2. Verification by confirmation 3. Settlement 4. Reconciliation The Treasury back officeThe Treasury back office
  24. 24. ResourcesResources  Traditionally, traders were regarded asTraditionally, traders were regarded as highly specialized staff, supported byhighly specialized staff, supported by competent personnel in the back office.competent personnel in the back office.  Nowadays, as complexity increased, highNowadays, as complexity increased, high quality, specialized people are needed inquality, specialized people are needed in both the dealing room and the back office.both the dealing room and the back office.
  25. 25. DateDate NameName CauseCause LessonLesson 19741974 BankhausBankhaus Herstaff,Herstaff, CologneCologne Losses inLosses in foreignforeign exchangeexchange Delivery orDelivery or settlementsettlement time zonetime zone riskrisk 19661966 HammersmitHammersmit h andh and Fulham localFulham local Interest rateInterest rate swaps lossesswaps losses Dealing ultraDealing ultra vires/vires/ documentatiodocumentatio nn 19951995 BaringsBarings Bank,Bank, singaporesingapore Futures andFutures and options indexoptions index tradingtrading losseslosses SegregationSegregation of duties/of duties/ managementmanagement controlcontrol The treasury back office: what can go wrong?The treasury back office: what can go wrong?

×